Top Glove flags 'start of comeback' as sales volume seen growing 60% in FY2025

Top Glove expects further sales recovery and projects its glove sales volume in FY2025 to grow 60% to 43 billion pieces, on industry stock replenishment and increase in sales flow from the US as a result of the 50% tariff on China-made gloves set to start on Jan 1, 2025.

The world's largest glove maker by capacity, which posted nine consecutive quarters of operating losses, thinks the tide has turned, and it is in a better position to command pricing and improve margins.

"Today we stand stronger than before, with our foundation firmly in place and our sights fixed on the opportunities ahead. The scene [now] is set for greater tomorrows," remarked managing director Lim Cheong Guan on Top Glove's return to core net profitability during its first quarter ended Nov 30, 2024 (1QFY2025).

"This is not just the end of the setback, it is the start of our comeback,” Cheong Guan said.

Confidence stemmed from stellar sales recovery in North America in 1QFY2025, up 21% quarter-on-quarter from the high base in 4QFY2024. Sales in 4QFY2024 itself already saw an increase of 120% from 3QFY2024.

Cheong Guan attributed the sales jump to the US import tariffs, adding that this is not the end of the upside, and expects "more sales to flow in the next few quarters".

Responding to questions about potential stiff competition on its non-US markets including Chinese glovemakers, head of group marketing Lim Jin Feng said Top Glove now stands a better chance to compete with better cost efficiencies, including through higher utilisation rates.

The price gap between Top Glove and its Chinese competitors has reduced to US$1 (RM4.51) per 1,000 pieces of gloves as compared to US$3-4 previously, Jin Fong said.

Some customers are happy to accept the US$1 price difference on ESG compliance reasons, as Top Glove primarily uses natural gas as feedstock as opposed to coal, he said.

Top Glove's utilisation rate has improved from 34% in 1QFY2024 to 59% in 4QFY2024 and 66% in 1QFY2025.

The second largest Malaysian-listed glove maker by market capitalisation plans to gradually increase its running capacity to 70 billion pieces of gloves by end-FY2025 from the current 64 billion pieces. It has a total installed capacity of 95 billion pieces.

In terms of global supply, Top Glove thinks expansion in China will be nil due to US tariff issues, and expansion outside of China will unlikely be on a large scale.

This gives rise to a better position for the company to raise average selling prices (ASPs), and it has done so.

Top Glove guided that its average ASP would move 3%-5% higher from Nov onwards. Nevertheless, Cheong Guan noted that the positive effects of rising ASPs will only be felt after Feb, due to the frontloading effects of purchasing from Chinese manufacturers.

Currently, its ASP to the US is about US$21-22 per 1,000 pieces of gloves. Prior to Covid, Top Glove's ASP to the US is about US$23 per 1,000 pieces.

In terms of product mix, Top Glove said nitrile gloves, which yield better margins, have moved further up to 63% from 60% in 4QFY2024, and it expects the nitrile gloves contribution will continue to move up going forward.

Top Glove also guided that it would lower its total borrowings to RM1.18 billion from RM1.59 billion as of Nov 30. This will lower its interest expense costs.