RHB Research
Top Glove organised a conference call with sell side analysts at 10am-11am today 24-Nov.
Conference call update1. For Teratai cluster, a total of 5767 test has been conducted out of which 2534 are positive. According to media, most of the positive case is from Top Glove. However, the % is not shared during the conference call.
2. None of the positive COVID case are in ICU. The media report on high ICU cases from Top Glove workers is not true. Out of those positive cases, 500 have been discharged and back to work.
3. Cost per COVID-19 test is MYR150 but claimable from SOCSO. Some urgent test cost for 500 workers is higher at MYR200 so the net cost will be MYR50 after deducting the MYR150 claim.
4. Top Glove plans to test all of its 8200 workers in Klang area. 5700 workers in Meru has been tested so the remaining 2500 will be tested soon or already tested and pending result.
5. Industry ASP should rise due to supply shortage. Nitrile gloves ASP for January delivery has increased 10% MoM and now is at around USD120 per box.
6. Short term plan is to get more local workers on contract basis.
Our view: Short term negative but long term neutral
The news is short term negative on the stocks as production process will be affected.
For every 2 weeks of operation loss, we estimate MYR181m earnings impact or 1.9% of FY21 earnings. Having said that, we estimate ASP increase should cover some of the earnings loss.
The news is long term neutral on the stock as it does not change the Company’s fundamentals as we believe that eventually the workers affected will resume working.
We maintain our BUY call with TP MYR9.50. Top Glove is now trading at close to -2SD valuation hence almost all of the bad news should have been priced in.
Top Glove - Victim of its own luck by CLSA
The Malaysian authorities have mandated 28 of Top Glove’s factories (50% of its capacity) to close in stages given rising Covid-19 cases amongst its workers. Details are scarce on how the progressive closure will take place, but we estimate a worst case impact of 4% to its bottom-line assuming a month of full closure. Given recent developments, we believe investors are unlikely to ascribe an above-mean multiple even to the group’s higher FY23 sustainable earnings until there is greater visibility in forecasts. We downgrade Top Glove from BUY to Underperform and lower our target price RM10 to RM7.20 with it offering a 21CL dividend yield of 8%.
