Despite Top Glove’s earnings being on a strong growth track in FY21, concerns over ESG issues could potentially de-rate the stock, analysts say. — AFP photo
KUCHING: Despite Top Glove Corporation Bhd’s (Top Glove) earnings being on a strong growth track in financial year 2021 (FY21), concerns over environmental, social and governance (ESG) issues could potentially de-rate the stock.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) recapped that Top Glove has been in the spotlight due to its workers’ housing conditions and high Covid-19 infections that led to the implementation of an enhanced movement control order (EMCO).
Kenanga Research further recalled that on November 23, the Government announced that 28 of Top Glove’s factories in Klang will temporarily cease operations in stages to allow the factory workers to undergo screenings and mandatory quarantine in an effort to contain the spread of the virus among the employees.
“Despite earnings on a strong growth track in FY21, concerns over ESG issues could potentially de-rate the stock,” the research arm said.
“Management is confident of robust demand over the next two years due to continuous acute shortage and still surging cases of Covid-19 in Europe and US.
“Case in point, US stockpile dropped from 16.9 billion pieces in December 2019 to two billion pieces in October 2020.”
According to Kenanga Research, post Covid-19, inventory restocking cycle is expected to spur demand coupled with increased usage arising from new user groups and increased hygiene awareness.
Looking ahead into the second quarter of FY21 (2QFY21), the research arm highlighted that Top Glove’s average selling price (ASP) in 2QFY21 is expected to jump by 30 per cent quarter on quarter (q-o-q), with higher volumes from new capacities and product mix skewed towards higher margin nitrile gloves.
“Efforts to source for more worker accommodations and to improve existing ones have been ongoing for which the Group has already invested RM70 million.
“In addition, the group has spent RM20 million purchasing 100 units of apartments over the past two months and is also renting more houses for its workers.”
Kenanga Research gathered that over the medium term, the group has earmarked approximately RM100 million to be invested in workers’ facilities and accommodation, which includes building mega hostels in Klang and Banting with a combined capacity of 7,300 pax fully equipped with a suite of amenities and facilities.
“So far 8,357 workers or 94 per cent of those tested positive and have recovered or tested negative are ready to resume work.
“Presently, its Klang factories’ utilisation is slowly ramping up with the reopening of all 28 factories.”
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