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Top Glove Corporation - DBS Research 2020-08-11: First Remediation Payment Made

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

Top Glove Corporation - First Remediation Payment Made

  • Top Glove (SGX:BVA) paid RM4.4m for migrant worker remediation; total fee estimated at RM53m.
  • Working to resolve withhold order; speedy resolution should alleviate concerns on social compliance.
  • If issue persists, strong industry demand may lead to diversion of sales to other countries.
  • Near term demand remains strong and supportive of earnings.



First payment made.

  • In an announcement to Bursa Malaysia yesterday, Top Glove declared the first remediation payment of RM4.4m in respect of its migrant workers who joined the group prior to the implementation of its Zero Cost Recruitment Policy in January 2019. See Top Glove's Announcements. It added that the total remediation fee to be paid is estimated at RM53m, subject to finalisation with the US Customs and Border Protection (CBP).
  • Top Glove (SGX:BVA) is still actively engaged with the US CBP to resolve the Withhold Release Order (WRO).
  • The first payment is an indication of the group’s efforts to resolve the WRO issue. A speedy resolution should help alleviate concerns of Top Glove (SGX:BVA)’s social compliance. We have factored in remediation fee of about RM50m to our FY20 net profit forecasts.
  • To recap, sales of the two affected subsidiaries account for 50% of the group’s total US sales and imply that US sales for these two subsidiaries make up 12.5% of Top Glove (SGX:BVA)’s total sales. We estimate that every four weeks of the WRO in 4QFY20 is equivalent to RM129m or 1.8% of our FY20 revenue estimates, and RM19m or 1.6% of our FY20 net profit estimates.
  • We believe that Top Glove (SGX:BVA) may divert supply to other countries if the issue persists due to industry shortage. Demand in other regions/countries including Latin America, Canada, Middle East and Europe remains strong.

Rating and Target Price under review.






Malaysian Research Team DBS Group Research | Siti Ruzanna Mohd Faruk DBS Research | https://www.dbsvickers.com/ 2020-08-11
SGX Stock Analyst Report BUY MAINTAIN BUY 9.060 SAME 9.060



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