Top Glove - CGS-CIMB Research 2020-11-06: 17 Workers Tested Positive For COVID-19

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TOP GLOVE CORPORATION BHD (SGX:BVA)

Top Glove - 17 Workers Tested Positive For COVID-19

• Top Glove (SGX:BVA) announced yesterday that 17 of its employees have tested positive for COVID-19. Top Glove has a total workforce of 21,000 people.
• Top Glove does not expect any impact on its operations, as it has undertaken various initiatives based on MOH’s guidelines.
• We expect minimal impact on Top Glove’s earnings based on the current information and assuming that the situation does not worsen.

17 of Top Glove’s employees have tested positive for COVID-19

• In a press statement yesterday, Top Glove announced that 17 of its employees tested positive for COVID-19 after undergoing swab tests on 2 Nov 20. We understand that these 17 employees were asymptomatic. These workers have been admitted to hospital for treatment.
• Based on our channel checks, these 17 workers are based in Top Glove’s factories located in Meru, Klang, Selangor. Top Glove has a total workforce of 21,000 people. We estimate that 8,000 (38%) are based in Klang, Selangor.

Top Glove does not expect any impact on its operations

• Top Glove has highlighted that it does not expect any impact on its operations. We understand that Top Glove has carried out deep cleaning and thorough sanitisation of the affected facilities (factories, living quarters and company vehicles) based on guidelines from Malaysia’s Ministry of Health (MOH).
• The company is also performing contact tracing. Employees in close contract with the affected employees have been tested and are undergoing home quarantine pending COVID-19 test results.

Minimal impact on our forecast, based on current information

• We expect minimal impact on our FY21-23 EPS forecasts for Top Glove. This is based on currently available information which includes the statement by Top Glove that it does not foresee any impact on its operations.
• However, our view is based on the assumption that the situation does not worsen, such as a sharp increase in the number of confirmed COVID-19 cases among its workers. In the event that this happens, we do not discount the possibility of any potential form of disruptions to its operations in Klang, Selangor.
• Based on our estimates, total capacity from Top Glove’s factories in Klang, Selangor contribute up to 50% of Top Glove’s total current production capacity (90bn pieces p.a.).

Reiterate ADD

• We make no changes to our Top Glove FY21-23 EPS forecasts, pending further developments on this matter. We also retain our ADD call with a Target Price of RM10.00, based on 17x CY22 P/E (in-line with its 5-year historical mean).
• We continue to like Top Glove, as it is the key beneficiary of higher glove demand owing to COVID-19 given its position as the world’s largest glove maker.
• See Top Glove Share Price; Top Glove Target Price; Top Glove Analyst Reports; Top Glove Dividend History; Top Glove Announcements; Top Glove Latest News.
• Potential re-rating catalysts include:
  1. swift resolution to the US Customs and Border Protection (CBP) ban placed on two of Top Glove’s subsidiaries,
  2. better-than-expected demand for gloves, and
  3. higher-than-expected increase in selling prices for gloves.
• Downside risks:
  1. a surge in confirmed COVID-19 cases among Top Glove’s workers,
  2. discovery of a cure/vaccine for COVID-19, and
  3. a sharp decline in average selling prices for gloves.

Walter AW CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-06

SGX Stock Analyst Report ADD MAINTAIN ADD 10.000 SAME 10.000