$Top Glove (BVA.SG)$ #TOPGLOV - Enterprise Tracking I share...
#TOPGLOV - Enterprise Tracking
I shared the information from the HARTA shareholder meeting last time, this time I'll show you the TOPGLOVE information, the meeting data from the day before yesterday.
★ Before the pandemic, EBITDA margins ranged from 12-15%, although it had been in continuous losses for several quarters, it has now recovered to 5-8% under the repair of 'price' and 'quantity'.
★ The situation in the glove industry is improving every quarter, reflected in the performance of each glove company. For reference, the total sales volume in Q3 this year has increased by as much as 46% year-on-year.
★ It is necessary to emphasize that the recovery of the glove industry is real, not a temporary rebound. Compared to the around 30% utilization rate a year ago, the current stage has risen to approximately 60%.
★ As the world's largest glove company, due to economies of scale, 'quantity' has always been a critical factor. Currently, the total capacity is 95 billion, much higher than Harta's 32 billion and Kossan's 24 billion. Due to considerably higher fixed costs compared to peers, if there is not enough demand, the pace of performance recovery will be slower.
★ Assuming glove demand maintains an 8% annual growth, the supply-demand situation is expected to reach equilibrium in 2025. As for when it will return to pre-pandemic levels, it is definitely not something for the next 2 quarters, perhaps the end of 2025 is a more realistic time frame.
★ After the rise of Chinese companies, there has been a huge change in the global glove industry landscape. They claim that their current capacity utilization is above 80%; however, out of the three local companies, only one is profitable, and the other two are in a loss-making state. It is believed that they no longer have much room to significantly reduce prices.
★ On the other hand, the U.S. recently adjusted the tariffs on Chinese imported gloves, increasing from 7.5% to 50% in 2025, far higher than the previous 25%, then further raising to 100% in 2026. This move will undoubtedly disrupt the business of Chinese exporters to the U.S. Currently, American customers have started to look for new supply sources in Malaysia and Thailand markets.
Under the impact of tariffs, Chinese operators are unlikely to continue capacity expansion activities locally, but may consider establishing new bases abroad. Even if new capacity is introduced, it will be at least 2 years away.
Feasibility of establishing a factory in the USA was discussed some time ago, but the local cost-effectiveness is very low, especially in terms of labor, taxation, human rights policies, etc. For low-value glove products, the profit conditions are not met.
97% of revenue and 40-50% of costs are priced in US dollars. Roughly calculated, around 60% of the USD risk exposure has been effectively hedged, with the remaining 40% freely floating. There will certainly be an impact, but in the current situation, there is room to adjust prices in the future. Even if it cannot be fully passed on, perhaps 50-60% can be.
Currently holding approximately RM900m+ in liquid funds, while also carrying RM440m in bank loans. In addition, there is a Sukuk bond worth RM1.3b maturing next year, which will initiate a phased redemption plan at that time. Looking at this, it is currently at a net debt level.
In summary, the implementation of tariffs on imported gloves from China by the USA is a significant bullish factor for Malaysian glove companies, helping to accelerate the pace of recovery. Top Glove's operational situation has not yet reached an efficient level. If the capacity utilization rate can be further increased to 70-80%, significant profit growth is expected.
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