Top Glove Hits Speed Bump?

On November 24, Top Glove became the biggest single-day contributor of new Covid-19 cases in Malaysia – 1,511 cases of total 2,188 recorded nationwide. It had to close 28 of its factories in Klang, which represents 50% of the rubber glove manufacturer’s production capacity. Delays in delivery will now be four weeks, depending (of course) on length of EMCO. Of its 11,215 workers, 2,684 were tested positive. This is the Teratai Cluster.

The Human Resources Minister told the Star, “I have visited the hostels and the conditions are terrible...”. This is the world’s largest manufacturer of rubber gloves with over 21,000 workers nationwide. One worker said, “only the production line was shut down, but packaging and container loading continues”. What about construction, other manufacturing or processing sites? Has the Minister visited them?

The global demand for gloves will touch 360 billion pieces in 2020 with Malaysia supplying 250-270 billion pieces. Of this, Top Glove has over 26% market share. Its production capacity with 750 production lines is 90 billion pieces per annum.

If factories close for 2 weeks, a drop in net income of 4% for FY21E is estimated, assuming average selling price (ASP) remains unchanged. If operations are impacted by a month, then impact could be 8%. But it is possible for ASP to increase that will cushion the bump. ASPs are increasing 10% month-on-month up to January 2021. Financial forecast summary done by Hong Leong Investment Bank is as follows:

The exceptional years seem to be 2020-2022. Profit before tax is expected to be 5-15x that of 2019. All because of Covid!

Meanwhile, the Company has been busy buying-up its own shares. Up to November 2020 it has spent RM1.1 billion in this exercise. Why do you do this? To support price (or value) of the company – the counter is up by over 300% since January (from RM1.55 to around RM6.80 per share currently).

So, is maintaining price (through share buy-backs) more important than lives of workers? Couldn’t this sum (RM1.1 billion) be used to improve workers’ hostel conditions (than shareholders’ interest)? Or, couldn’t this sum be donated to the Covid-19 fund? How will the nation benefit from the multiple increases in PBT owing to Covid? Yes, Top Glove pays income tax, after providing for statutory allowances. But why not pay a windfall tax? The MoF thinks it will spook investors! The "hantus" of instability, discrimination, flip-flop policies spook investors more than windfall tax.

 Or, are we treating glove manufacturers with kid gloves?

 

Reference:

1.     Top Glove’s share buyback tops RM1b as over RM12b market cap wiped off amid rise in Covid-19 cases among workers, the Edge, 25 Nov 2020

2.     Top Glove estimates dividend yield to be more than 6% in FY21 – chairman, the Edge, 26 Nov 2020

3.     Report: ‘Entire Labour Dept’ will investigate conditions at Top Glove factories, says HR minister, Malay Mail, 25 Nov 2020

4.     Top Glove Called Out Again for Unsanitary & Terrible Conditions in Quarantine Centres for Foreign Workers, World of Buzz, 25 Nov 2020

5.     Top Glove Brief Takeaways, Hong Leong Investment Bank Research, 25 Nov 2020