TOP GLOVE CORPORATION BHD (SGX:BVA)
Top Glove - An Ongoing Journey
Committed to ESG compliance; maintain BUY
- Top Glove (SGX:BVA)’s ESG risks are not unique for a glove manufacturer and it is leading the sector in establishing policies to mitigate these risks. In our view, ESG risk should fall over the years as it leverages on its strong balance sheet and invests in automation to reduce its labour dependency.
- Maintain BUY on Top Glove with Target Price MYR9.53 (9x CY21E P/E; -1SD of 5Y mean as we expect earnings to taper post-CY21E).
Complying with international standards
- Since Jan 2019, Top Glove has attended to more than 100 external independent social audits, which were initiated by its customers. The social audits were carried out based on international standards, i.e. the Business Social Compliance Initiatives (BSCI) and Sedex Members Ethical Trade Audits (SMETA). Top Glove has been a SEDEX member since 2018.
Remediation fees underway
- Following the Withhold Release Order (WRO) on Top Glove’s 2 subsidiaries by the US Customs and Border Protection (CBP) in mid-Jul 2020, Top Glove has made the following improvements:
- A total of MYR136m (or 1% of our FY21 net profit) will be paid to its 11,300 migrant workers (c.90% of its total factory workers) which are entitled to the remediation fees. About MYR9m was paid in Jul-Aug 2020 and the balance MYR127m will be paid from Oct 2020 (over a period of 10 months);
- The workers’ space at the hostels has been enlarged, to comply with Malaysia’s new minimum standard;
- Ensures that workers wear personal protective equipment (PPE);
- Strengthened its whistle blowing policy by adding hotline contacts between independent consultants and the migrant workers.
Withhold Release Order (WRO) could be lifted by end-2020
- We understand that Top Glove has met all the expectations of the US CBP, save for the remediation fees. Hence, with the remediation fees underway, we think the WRO could be lifted by end-2020.
- In the meantime, the gloves produced have been diverted to other markets and thus, there was no significant impact on Top Glove’s sales volume.
- See Top Glove Share Price; Top Glove Target Price; Top Glove Analyst Reports; Top Glove Dividend History; Top Glove Announcements; Top Glove Latest News.
Lee Yen Ling
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-10-08
SGX Stock
Analyst Report
9.530
SAME
9.530
