Various indicators are pointing to a strong demand recovery moving into 2025 for Top Glove Corporation Berhad (Top Glove) that exceeds market expectation. As a result of higher sales volume and factory utilisation forecasts, coupled by favourable international trade development, the more-upbeat market expectation has put the 2025 and 2026 net profit growth at 39% and 42% respectively, according to Kenanga.

Top Glove is optimistic that the strong growth momentum will sustain, as customers continue replenishing their depleting glove stockpiles. The group continues to see month-on-month uptrend in sales volume, notably in September 2024, and expects restocking activity to pick up in subsequent quarters. Its sales volume has strengthened 25%-30% month-on-month, bringing its factory utilisation rate to 65%-70%.

The group highlighted that its exports to the US is continuing to show improvement and currently account for 28%-30% of its geographical sales mix.

Top Glove expects to benefit from the recently announced upward revision of US tariffs.

The hike in US tariffs has largely eliminated market risks related to predatory pricing by glove manufacturers who sell below cost over an extended period to eliminate competitors.

Analysts noted that the present appreciation of Malaysian ringgit (MYR) against the US dollars (USD) is offset by the rising momentum of sales volume. To date, the USD had weakened 10% against the MYR (USD1 = MYR4.12) since the beginning of 2024. Theoretically, an appreciating MYR against the USD will lead to less revenue receipts for glove makers as overseas sales revenues are USD-denominated.

Key indicators are pointing towards a strong demand recovery moving into the second half of 2024 and 2025, stronger than what analysts previously projected.

Analysts expect glove stock prices to re-rate in anticipation of near-term earnings upsurge which clearly is a positive for the sector. The oversupply situation appears to be less acute now and will gradually improve. Based on analysts' estimates, the demand-supply situation will move towards equilibrium starting 2026 when there is no more net new capacity coming onstream. Meanwhile, the global demand
for gloves is expected to rise by 15% per annum supported by rising hygiene awareness.

Analysts has upgraded Top Glove's target price to RM1.02 (previously RM0.97) while reiterating the MARKET PERFORM call.

As of reporting at 3:49pm Thursday, Top Glove's stock traded at RM1.02, at par with the target price. (Stock updates by )