KUALA LUMPUR: Investment analysts do not expect Top Glove Corporation Bhd, which last week reported a net loss of RM926.64 million for its financial year ended Aug 31, 2023 (FY2023), to return to profitability in the near term.
Maybank Investment Bank (IB) said the glove maker is likely to continue registering losses in FY2024 and FY2025 before turning around in FY2026.
This is after factoring in the group’s actual FY2023 results, lower plant utilisation rate for FY2024/FY2025, and the exchange rate of RM4.50 to the US dollar from RM4.20.
“We raise our FY2024-FY2025 loss projections and introduce FY2026 forecast, expecting a turnaround in FY2026,” Maybank IB said in a research note.
The research house has lowered its 12-month target price (TP) by three sen to 77 sen and upgraded its recommendation to “hold” from “sell” previously, noting that the “risk-reward has become more balanced post-kitchen sinking exercises.”
On Friday last week, Top Glove announced the FY2023 net loss which was due partly to asset impairment and write-off of RM389 million. In FY2022, it posted a net profit of RM225.56 million.
Meanwhile, Public Investment Bank (PIVB), in its research note, said it remains cautious on Top Glove’s operating landscape, mainly due to the formidable competitive presence of Chinese players.
Based on its channel checks, Chinese players are currently selling at US$14-US$15 per 1,000 piece, with improved margins due to lower coal prices.
“Malaysian glove players could face further erosion in global market share as customers may continue to divert their orders to Chinese players, lured by the comparatively lower pricing.
“As such, we expect Top Glove to remain loss making and is unlikely to revert back to its pre-COVID profit levels anytime soon,” it said.
PIVB retained its “underperform” call on Top Glove with an unchanged TP of 63 sen amid widening quarterly net loss due to a decline in average selling prices (ASPs) and weaker sales volume. The company incurred its fifth consecutive quarterly net loss in the fourth quarter (4Q) of FY2023 (a net loss of RM463.14 million versus a net loss of RM62.99 million in 4QFY2022).
Another research firm, Hong Leong Investment Bank (HLIB), also maintained its “sell” call with an unchanged TP of 51 sen
as it is not anticipating the company to return to the black in the near term.
“In light of escalating nitrile butadiene costs, due to the increase in feedstock prices, the company’s management anticipates a corresponding upward adjustment in ASPs,” it said.
HLIB said sales volumes have been showing positive month-on-month growth, and the pricing gap between local and foreign players has narrowed.
“However, we hold the perspective that further ASP increases might potentially hinder the recovery momentum, as buyers seek out the most cost efficient supplier.
“Separately, management believes that bottom-line breakeven is attainable should utilisation rate improve by 10 per cent.
That said, this could take up to 12 months to materialise,” it added. – BERNAMA
