Top Glove Corporation - DBS Research 2020-07-17: Temporary Setback

TOP GLOVE CORPORATION BHD (SGX:BVA) | SGinvestors.io TOP GLOVE CORPORATION BHD (SGX:BVA)

Top Glove Corporation - Temporary Setback

  • US Customs detention order may lead to short-term share price weakness.
  • Top Glove aims to resolve the issue in 2-4 weeks.
  • To divert sales volume to other countries, if issue prolongs.
  • Maintain BUY and Target Price of RM27.80.



US customs detention order may dampen near term sentiment


Detention order by US customs.

  • The US Customs and Border Protection (CBP) has placed a detention order on disposable gloves manufactured by two of Top Glove (SGX:BVA)’s subsidiaries, namely Top Glove Sdn Bhd and TG Medical Sdn Bhd, on 15 July 2020. The Group believes this is likely due to foreign labour recruitment fee issues prior to Jan 2019. During that time, foreign workers paid recruitment fees to agents – a practice that was subsequently debated, reviewed and stopped. Since January 2019, Top Glove has been bearing all recruitment fees when the Zero Recruitment Fee Policy was implemented.

Engage consultant to resolve the issue.

  • Top Glove is engaging a consultant to resolve the issue, which may include paying recruitment fees to the workers. The estimated amount is RM20m-RM50m. This is equivalent to 4% of our FY20 net profit forecast.

Potential impact to earnings due to detention order.

  • Top Glove targets to resolve this issue in two to four weeks. US sales account for 25% of Top Glove’s total sales. Sales of the two affected subsidiaries account for 50% of the Group’s total US sales – implying US sales for these two subsidiaries is 12.5% of total Top Glove sales.
  • We estimate every four weeks that the order is in place in 4QFY20 is equivalent to:
    • RM129m or 1.8% of our FY20 revenue estimate; and
    • RM19m or 1.6% of our FY20 net profit estimate.


Top Glove - Valuation


Reiterate BUY and Target Price of RM27.80.






Malaysian Research Team DBS Group Research | Siti Ruzanna Mohd Faruk DBS Research | https://www.dbsvickers.com/ 2020-07-17
SGX Stock Analyst Report BUY MAINTAIN BUY 9.060 SAME 9.060



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