Gloves Companies – Malaysia - UOB Kay Hian 2021-07-07: Glove Manufacturers Deemed Non-Essential Under EMCO

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

Gloves Companies – Malaysia - Glove Manufacturers Deemed Non-Essential Under EMCO

  • The glove manufacturers have not been deemed as essential services under the Enhanced Movement Control Order (EMCO) in Selangor and 14 localities in Kuala Lumpur. For now, the EMCO is due to last for two weeks, between 3-16 July.


COMMENT


The Big 4 take a hit.

  • This affects the Big 4 glove producers (Top Glove (SGX:BVA), Hartalega, Kossan and Supermax) as their production footprint is primarily located in Klang, Selangor. The development comes as a surprise as glove manufacturing was allowed during MCO 1.0 and medical and health sectors are among the sectors listed as essential services. The glove manufacturers’ large labour workforce could possibly be a cause for concern for the authorities.

Two weeks’ downtime could impact earnings by up to 3%.

  • The glove manufacturers were already running at a 70% utilisation rate under the MCO. For now, all operations are fully suspended until informed otherwise by the authorities that have prioritised breaking the COVID-19 transmission chain. Based on our estimates, for every two weeks of suspended operations, Top Glove / Hartalega / Kossan / Supermax’s FY21 earnings will be affected by 1.4% / 2.7% / 2.5% / 2.7% respectively.


EARNINGS REVISION/RISK

  • We leave our earnings forecasts unchanged for now as the development is largely insignificant at this juncture and the fluidity of the situation may prompt authorities to revise their stance.
  • Key downside risks include:
    1. disruption to its production or supply chain caused by the COVID-19 outbreak; and
    2. sharper-than-expected ASP reversion.

RECOMMENDATION


Maintain UNDERWEIGHT.






Philip Wong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-07-07
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.020 SAME 2.020



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......