Top Glove's share price falls as EMCO starts in Klang foreign workers' dormitories

KUALA LUMPUR (Nov 17): Top Glove Corp Bhd's share price fell as much as RM1.05 or 14.58% to RM6.15 in Bursa Malaysia morning trade today after the rubber glove manufacturer said yesterday it would seek clarification from relevant authorities on the implementation of the Covid-19-driven enhanced movement control order (EMCO) from today to Nov 30 at the group's specific foreign workers' dormitories in Meru, Klang, Selangor.

At 11.05am today, Top Glove had pared losses and rebounded to RM6.48 with some 77 million shares traded.

At RM6.48, Top Glove had a market capitalisation of about RM52.49 billion.

Yesterday, Top Glove said in a Bursa filing that it will continue to work closely with the relevant authorities to ensure the safety and well-being of the company’s employees and contain the Covid-19 pandemic.

"Meanwhile, we will continue to adhere to Covid-19 preventive standard operating procedures (SOPs) on a stringent basis. Disinfection exercises on our premises and accommodation are also conducted regularly, with all the necessary precautionary measures strictly in place,” Top Glove said.

Today, Public Investment Bank Bhd analyst Chua Siu Li wrote in a note that Public Investment understands that Top Glove’s factory operations are expected to be carried out as normal despite running at a lower run rate given less manpower due to the EMCO.

In the meantime, Public Investment believes Top Glove may hire local part-time workers to make up for the worker shortage, according to Chua.

"Should the situation worsen, leading to a more serious shortage of gloves, we think that ASPs (average selling prices) could increase further given the fact that Top Glove commands 25% of global market share. With that, we maintain our 'trading buy' call [for Top Glove shares] with an unchanged target price (TP) of RM9.70.

"We see the weakness in its share price as an opportunity to accumulate [the shares],” Chua said.

Meanwhile, TA Securities Holdings Bhd analyst Tan Kong Jin said there is a potential loss of revenue for Top Glove due to the EMCO.

Tan said the opportunity cost could be around RM54.6 million for 14 days of disruption, less than 1% of forecasted net profit for the financial year ending Aug 31, 2021 (FY21), assuming that each plant is generating profit of around RM780,000 per day.

"Coupled with the cost of sanitisation and screening of workers, we believe the overall impact is less than 3% of FY21 earnings. Besides that, management has added that there is no need to write off any inventory.

"[We make] no change to our earnings estimates, pending further developments of the situation. Top Glove’s TP is lowered to RM8.84/share (previously RM10.80/share) based on revised nine times CY21 EPS (earnings per share forecasted for calendar year 2021). [We] reiterate 'buy'. A key risk is further extension of the EMCO in the affected area where Top Glove’s plants are located,” the analyst said.

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