KUALA LUMPUR: Top Glove Corp Bhd
's wait for a return of sales volume could be longer than anticipated as the oversupply situation in rubber gloves may not right itself anytime soon.
The world's largest glove maker yesterday posted a net loss of RM168mil, which disappointed expectations of a return to a full-year net profit in FY23.
According to Kenanga Research's review of the results, 1QFY23 revenue fell 36% due to 8% lower average selling price and a 32% plunge in sales volume.
Top Glove said in an analysts briefing the challenging environment is expected to persist into 2023 and it expects to only return to the black in nine to 12 months.
"Specifically, the group hopes to narrow its losses at the Ebitda level in 2QFY23, turn Ebitda positive in 3QFY23 and break even or return to the black from 4QFY23," said Kenanga in a note.
The glove maker said in its briefing that the rate of decline in ASPs is slowing while there has been an uptick in orders for delivery in December 2022 and January 2023, boosting its utilisation rate to 40% from 30% in 1QFY23.
However, Kenanga Research said the demand growth might not be sustainable given the price undercutting by Chinese players and the unwillingness of buyers to place sizeable orders and hold substantial stocks.
In this vein, the research firm is holding a less optimistic view over the return of global demand for rubber gloves and expects the oversupply situation to persist over the next 12 to 24 months.
It said in note that it forecasts the demand-supply situation to head towards equilibrium in 2025, which is further away than the Malaysian Rubber Glove Manufacturers Association's forecast of six to nine months.
It added that the balance will be achieved in 2025 when there is no more new capacity coming onstream while the global demand for gloves continue to rise 15% per annum on rising hygiene awareness.
By Kenanga's estimate, massive capacity expansion by incumbent players as well as new players during the pandemic years will result in a 22% jump in global glove manufacturing capacity to 511 billion pieces in 2022.
Kenanga projects a net loss of RM356mil in FY23 for Top Glove, instead of a net profit of RM177mil as it reduces its utilisation assumption to 40% from 60%.
It also cut its FY24 net profit by 77% as it reduced its utilisation assumption to 45% from 60%.
"We reiterate our 'underperform' call and target price of 60 sen based on 0.9x FY23F BVPS, at a 50% discount to the sector’s average of 1.7x during the last downturns in 2008-2011 and 2014-2015 as we believe the current downturn could go down in history as one of the deepest ever," it said.
