July 7, 2021

These are Analysts' Projections on the Impact of Factory Closure

 The temporary closure of glove factories will not only affect the company's revenue but could also affect their relationship with overseas buyers especially as Malaysian glove manufacturers are currently facing intensifying competition from Chinese glove makers.

Maybank Investment Bank (Maybank IB) in its research note today said Top Glove, Hartalega and Kossan had suspended the operations of their respective glove production plants in Selangor on Tuesday following the enforcement of the Tightened Movement Control Order (PKPD).

The investment bank added, it was quite surprised by the latest development as gloves are among the important personal protective equipment (PPE) and its related factories have been allowed to operate since the first PKP.

"Assuming a two-week closure of glove factories in Selangor under PKPD, we expect our projections for core net profit for financial year 2021 to decline, 7.4% and 16% for Top Glove and Kossan, respectively," he explained as reported. by Bernama.

Maybank IB projects Hartalega's net profit could decline 16% in financial year 2022 due to the full closure.

Maybank IB added that the suspension of glove factories in Selangor is expected to affect around 55 per cent of Top Glove's total production capacity and 100 per cent for Hartalega and Kossan.

The investment bank also said that although the impact on the glove company's earnings was still manageable and temporary, investor sentiment towards glove counters would be further eroded by this latest development.

The outlook for the sector is now overshadowed by ongoing negative news such as declining average selling price (ASP) following intensifying competition among new and existing glove players apart from environmental, social, and governance (ESG) risks.

Meanwhile, in a separate note, AmInvestment Bank noted the closure of these factories could slow the decline of ASP gloves as supply is temporarily limited.

“We believe this PKPD will be implemented for at least a month, before returning to the PKP situation.

"We do not rule out the possibility that these companies will be given approval to resume operations given the importance of gloves in curbing the spread of Covid-19," he added.