World's biggest rubber glove maker has lost $22 billion since pandemic peak

Malaysia's Top Glove has seen its shares plunge 88 per cent from a peak in 2020. PHOTO: REUTERS

SINGAPORE (THE BUSINESS TIMES, BLOOMBERG) - The world's largest rubber glove maker has lost US$16 billion (S$22 billion) in market value since the height of the pandemic as countries around the world shed their Covid-19 restrictions.

Malaysia's Top Glove Corp, one of the hottest trades during the virus outbreak, has seen its shares plunge 88 per cent from a peak in 2020. Softer demand due to vaccine roll-outs, rising input costs and competition from rivals are hurting the firm's earnings, analysts say.

The slump underscores the shift in global sentiment as borders reopen, trade resumes and the world learns to live with the Covid-19 virus. The glove producer's stock is trailing all its peers in the Malaysian benchmark gauge this year after shedding more than 50 per cent to slide to the lowest level since December 2017.

The company, which manufactures one of every five gloves in the world, saw its net profit for the third quarter to May dive 99.3 per cent to a paltry RM15.3 million (S$4.8 million) from RM2 billion in the same quarter last year. 

This brought nine-month earnings to RM288.6 million, down from RM7.3 billion in the year-ago period. 

No dividend was declared for the quarter under review, the company said in a bourse filing on Thursday (June 9). 

Top Glove has also deferred and reduced its major capital expenditure for the immediate term, the company said, as it continues to align its expansion plans with market conditions

Revenue for the third quarter was down 64.8 per cent to RM1.5 billion from RM4.2 billion in the corresponding year-ago period. 

A year ago, with the Covid-19 pandemic at its peak, demand and average selling prices were at an all-time high and operating costs were lower.

Top Glove said that as the pandemic transitions into an endemic phase, the industry has been experiencing "the effects of the normalisation in terms of demand and average selling price". 

It cited rising production costs due to global inflation, as well as the Russia-Ukraine conflict, which has driven up crude oil prices. There were also higher natural gas and electricity tariffs, as well as the implementation of a minimum wage that came into effect from May 1. 

"The escalating costs resulted in margin compression as the group was unable to fully pass cost through amidst the ongoing oversupply situation," said the company. 
However, it noted that average selling prices for gloves are declining at a slower pace, which will help cushion the cost impact going forward. 

A bright spot for Top Glove appeared to be a 6 per cent quarter-on-quarter improvement in sales volume, due primarily to the recovery in sales to the United States. Sales to the US showed an 8 per cent uptick from the second quarter. 

To recap, Top Glove ran into trouble with the US Customs and Border Protection (CBP) on multiple occasions amid the discovery of forced-labour practices in the company’s production of disposable gloves. 

These included the issuance of a Withhold Release Order (WRO) in July 2020 based on “reasonable but not conclusive information” that multiple forced-labour indicators existed in Top Glove’s production process. The WRO was lifted on Sept 10, 2020, after the CBP said a thorough review of evidence showed that the company had addressed all indicators of forced labour. 

Looking ahead, Top Glove expects the challenging business environment to persist in the near term, but says the situation is a temporary setback. 

Top Glove managing director Lee Kim Meow said: "This is an extremely challenging time for the glove industry and this quarter's results are not reflective of our usual business performance, owing to the ongoing normalisation trend coupled with demand-supply imbalance."

Mr Lee believes demand will continue to grow with increased usage from emerging markets, where the glove consumption base is relatively low.

Higher levels of hygiene and health consciousness in a post-pandemic era will also help boost demand, he said. 

Top Glove’s Singapore-listed shares closed up 0.5 cent, or 1.3 per cent, at 38.5 cents on Thursday.

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