“The price correction is ongoing, as the imbalance in the glove demand and supply situation persists,” executive director Lim Cheong Guan said at a virtual media and analyst briefing on Top Glove’s results for 3Q22.
PETALING JAYA: The “boom” days for glove manufacturers might have come to an end with Top Glove Corp Bhd
reporting its weakest quarterly profit in recent history as the industry faces pressure in its current operating environment.
Top Glove reported a plunge in net profit to RM15.29mil for the third quarter ended May 31, 2022 (3Q22) compared with RM2.04bil in the previous comparative quarter, with an earnings per share (EPS) of 0.19 sen for the quarter.
The group recorded RM45.1mil from other operating income such as interest income, realised as well as unrealised foreign-exchange gains and other income, including investment income that kept the glove maker profitable for the quarter.
In terms of revenue, the group reported a 65% fall to RM1.46bil in 3Q22 compared with RM4.16bil in the previous corresponding quarter.
As the industry transits into the post-pandemic phase, glove demand and supply is said to be imbalanced.
Despite the tough situation for the industry, Top Glove is happy to see growth in its sales volume, up by 6% quarter-on-quarter (q-o-q), with sales to the United States continuing its uptrend with a 8% q-o-q growth.
Average selling prices (ASPs) of gloves fell 5% q-o-q in 3Q22.
This was a slower pace than previous quarters and a lesser decline compared with the 20% q-o-q decline in the previous quarter.
“The price correction is ongoing, as the imbalance in the glove demand and supply situation persists,” executive director Lim Cheong Guan said at a virtual media and analyst briefing on Top Glove’s results for 3Q22.
He said the industry continued to face rising cost of production due to global inflation and Russia-Ukraine conflict, which is driving up oil prices.
“Higher natural gas, electricity and wages impacted around 0.8% of the total production cost,” he added.
Due to production capacity reduced to 50%, Top Glove executive chairman Tan Sri Lim Wee Chai said the group was not facing any shortages of foreign workers.
Since the reopening of borders, Wee Chai said there have been some foreign workers recruited.
Looking forward, the group believes global glove demand will improve with transition into the endemic phase, as gloves remain an essential item in the healthcare sector.
“A higher demand growth rate is seen from emerging markets where glove consumption base is relatively low, coupled with hygiene and health consciousness in a post-pandemic era,” Cheong Guan said on the prospects for glove demand.
Cheong Guan believes the deferring expansion plans by major manufacturers, coupled with closure of smaller players and newcomers, will ease the oversupply situation and help achieve a demand and supply equilibrium.
Speaking of ASPs, he said they were likely to stay range-bound in the near term.
This was because the industry was facing a challenging business environment.
Meanwhile, Wee Chai said there was a possibility of ASPs dropping below pre-pandemic levels due to supplies being more than demand.
In a Bursa Malaysia filling, the world’s largest glove manufacturer said its 3Q22 results were affected due to the industry facing a softer performance owing to the normalisation in demand and ASPs, as well as rising costs that resulted in margin compression.
“The resulting softer performance has occurred amidst a convergence of headwinds,” the group said.
The group noted that it was not able to fully pass the cost through amidst the ongoing oversupply situation.
“However, ASPs are declining at a far slower pace which will help cushion the cost impact going forward,” the group added.
The results are also in contrast to periods when the pandemic was at its peak.
At this time, demand and ASPs were at all-time highs and operating costs were lower, according to the group.
For the nine-month period of the financial year 2022, the group’s revenue and profit dived by 69% and 96% to RM4.5bil and RM288.6mil, respectively.
Meanwhile, comparing 3Q22 to the previous quarter, revenue growth was flat at 1% while profit slumped 83%, owing to the weaker performance attributed to the above-mentioned factors.
