Top Glove Reported its First-Ever Quarterly Loss: Can Its Share Price Recover?

The Smart Investor2022-09-23

Top Glove Corporation Berhad (SGX: BVA) continues to face a host of problems even as its share price slides to a six-year low of S$0.20.The glove maker released its fourth quarter (4Q2022) and full ...

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Comments

claratan
2022-09-29
claratan
Wow
OPTIONDAN
2022-09-23
OPTIONDAN
Once a darling in the glove industry now is in a riding the storm phase. In this high inflationary environment, only the strongest company in terms of having ample cash flow will ride through the storm.No dividend. No 3rd listing in Hong Kong in the near future.
UTOtrader
2022-09-23
UTOtrader
T

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href=https://thesmartinvestor.com.sg/top-glove-reported-its-first-ever-quarterly-loss-can-its-share-price-recover/><strong>The Smart Investor</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Top Glove Corporation Berhad (SGX: BVA) continues to face a host of problems even as its share price slides to a six-year low of S$0.20.The glove maker released its fourth quarter (4Q2022) and full ...</p>\n\n<a href=\"https://thesmartinvestor.com.sg/top-glove-reported-its-first-ever-quarterly-loss-can-its-share-price-recover/\">Source 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(SGX: BVA) continues to face a host of problems even as its share price slides to a six-year low of S$0.20.The glove maker released its fourth quarter (4Q2022) and full fiscal 2022 (FY2022) earnings this week.Disappointingly, the company logged its very-first quarterly loss and warned that tough conditions look set to continue.Here are some highlights from the glove manufacturer’s latest earnings.A write-off and quarterly lossWith glove demand normalising as the effects of the pandemic wear off, Top Glove saw revenue for 4Q2022 fall sharply by more than half from RM 2.1 billion to RM 990 million.Operating expenses, however, only fell by 28.4% year on year to RM 1.1 billion.As a result, Top Glove booked an operating loss of RM 41 million and its maiden quarterly net loss of RM 52.6 million.The loss occurred after the glove maker wrote down the value of its inventory due to the sharp plunge in average selling prices (ASPs).For context, 4Q2022 saw a RM 56 million hit while FY2022 witnessed a RM 229 million one-off expense hitting the bottom line.Excluding this write-off, Top Glove would have been marginally profitable with a RM 3.4 million net profit.For FY2022, revenue fell 66% year on year to RM 5.6 billion while net profit plunged 96% year on year to RM 236 million.Sales volume and ASPs on the declineTop Glove is facing a long list of problems.Overall ASP declined by 5.4% quarter on quarter, with the fall continuing for both nitrile gloves and natural rubber gloves (NR gloves).Nitrile and NR glove ASPs were down 10% and 6% quarter on quarter, respectively.While the previous quarter saw a 6% quarter on quarter rise in sales volume, 4Q2022 more than erased this good performance with a sharp 35% quarter on quarter fall.The fall in both sales volume and ASP was due to aggressive expansion by new and existing players along with customers stockpiling excess inventory.Squeezed by higher costsTo make matters worse, production costs are also rising for Top Glove due to high inflation and disrupted supply chains arising from the Russia-Ukraine conflict.Natural gas tariffs have risen close to 60% in FY2022 and were up 10% quarter on quarter.Malaysia also implemented a higher minimum wage of RM 1,500 in May 2022 (up 25% from RM 1,200) saw its full impact felt in 4Q2022.Packaging materials and chemicals also rose due to inflation, and lower factory utilisation rates meant overall higher unit costs due to operating leverage working against the company.While Top Glove has traditionally been able to pass on these higher costs to customers, the company was unable to do so due to the oversupply situation.Sharply curtailed expansion plansThe glove manufacturer has further curtailed its expansion plans due to the persistent oversupply situation.It now intends to defer its expansion plans in both 2024 and 2025 to end 2025 with just 115 billion pieces per year in production capacity.A sliver of hopeIt’s not all bad news for the company.Executive chairman Lim Wee Chai has announced that Top Glove is raising its ASP by 5% in October to offset some of the cost increases.The company is leading the way in raising prices and hopes that its competitors follow suit, but admitted that some customers resisted this price increase.It remains to be seen if Top Glove can successfully raise prices, or if predatory pricing from its competitors may erode this advantage.Get Smart: No light at the end of the tunnel yetManagement at Top Glove has been candid about the company’s problems.The persistent decline in ASP and weak sales volume may persist for several quarters more.The shake-up of the industry continues as weaker players exit but predatory pricing is still keeping ASPs low.Top Glove has refrained from paying out a final dividend as it seeks to conserve cash to navigate the stormy seas.There seems to be no light at the end of the tunnel yet for the world’s largest glove manufacturer.Investors should continue to monitor the company for updates as it 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