Return to profit boosted by customers replenishing their glove inventories managing director says group well-positioned to meet growing glove demand

 

MALAYSIAN glove maker Top Glove Corporation : BVA +1.49% on Wednesday (Jun 19) reported a net profit of RM50.7 million (S$14.5 million) for the third quarter ended May 31, reversing a loss of RM130.6 million in the same period the year before.

 

Profit was driven by stronger glove demand as customers replenished their glove inventories after clearing excess stock, as well as contribution from the disposal of excess land, said the manufacturer in a bourse filing.

 

&ldquo The resultant higher utilisation coupled with ongoing quality and cost optimisation measures also positively impacted the bottom line,&rdquo said the company.

 

This net profit translates into an earnings per share of 0.63 sen, compared to a loss per share of 1.63 sen in Q3 FY2023.

 

Revenue for the period was RM636.9 million, up 20 per cent from RM530.6 million.

 

In an earnings call after the results, the group portioned out the contribution of the sale of excess land and gains from foreign exchange, which totalled around RM78 million.

 

Without this contribution, the group posted a core Ebitda (earnings before interest, taxes, depreciation and amortisation) of RM52 million, more than doubling its previous quarter&rsquo s core Ebitda of RM25 million.

 

Managing director Lim Cheong Guan noted that the group&rsquo s core Ebitda margin, which came in at 8 per cent for Q3 FY2024, is recovering towards its pre-pandemic level of 15 per cent. The improving Ebitda also signifies an ability to command pricing, he said.

 

In line with stronger glove demand, the company has also started to roll out more production lines, with its capacity up to 63 billion gloves per annum in Q3, compared to 60 billion per year in Q2.

 

Ng Yong Lin, its chief operating officer, said the group aims to roll out eight to 10 lines every month up to the end of the year, across its various factories. Top Glove has an overall production capacity of 95 billion pieces a year through 788 production lines.

 

As for its sales volumes, managing director Lim expects them to increase by 30 to 35 per cent in the next quarter.

 

Competition from China, foreign worker freeze

Citing an example of the tide turning in Top Glove&rsquo s favour, Lim highlighted that the US recently hiked tariffs on medical gloves from China.

 

This presents an opportunity for Malaysian glove makers as Chinese manufacturers slow down their capacity expansion. The group also does not expect the Chinese players to compete heavily with Malaysia by lowering their glove prices, due to the low profit margin of gloves.

 

&ldquo Although the possibility remains that Chinese manufacturers may set up shop in other regions, they may not do nearly as well in the absence of their home ground advantage,&rdquo he said.

 

Meanwhile, the group remains hopeful that the Malaysian government will reconsider the May 31 deadline for foreign worker entry into the country and allow an extension.

 

Executive chair Lim Wee Chai said the group has been recruiting foreign workers prior to the deadline in anticipation of increasing its production capacity, and currently has a slight excess in its labour force that will be utilised as more production lines open.

 

Notwithstanding the foreign worker limitations, managing director Lim is positive that glove demand will continue to climb and Top Glove is well-positioned to meet it. He said: &ldquo I&rsquo m pleased to be able to say with finality that the storm has truly passed. In terms of outlook, the forecast can only be bright skies ahead.&rdquo

 

On a nine-month basis, the group remained in the red. It trimmed its net loss for the three quarters by 87.4 per cent to RM58.2 million, from RM463.5 million. Revenue for the period lowered 5.6 per cent to RM1.7 billion from RM1.8 billion.

 

The group noted that the average natural latex concentrate price was up by 20 per cent to RM6.77 per kilogram, while the average nitrile latex price rose 16 per cent to US$0.89 per kilogram.

 

Despite this increase, it was able to reduce its cost of production through multiple improvement initiatives, said Top Glove.

 

As glove demand grew, the group was also able to share out some of the cost increases with customers through upward revisions in average selling prices.