The U.S. import ban has burst the Top Glove bubble

When Top Glove spent 12 months uneventful and strong, the largest rubber glove manufacturer was named the fifth largest employer in Asia by March magazine.

Shares of the Malaysian personal protective equipment manufacturer have risen more than 500 percent since a new coronavirus was reported in China a year earlier.

However, the share price resulted in the adoption of vaccines at the end of 2020. Then, the day after the March assignment, U.S. Customs and Border Protection he ordered the kidnapping Arriving at American ports, Top Glove’s products used forced labor by the company over allegations.

U.S. accusations have removed the congratulations of one of the world’s largest pandemic beneficiary companies. The company’s rise was so rapid in the early days of Covid-19 that Lim Wee Chai, Founder and chair of Top Glove, his fortune nearly tripled in April 12 to $ 3.5 billion, Forbes, Becoming the eighth richest person in Malaysia.

Today, aside from the U.S. kidnapping order, the company’s forecasts are fading as a result of the rapid spread of vaccines in developed markets, the demand for Top Glove products may be reduced and the competitiveness of low-cost Chinese producers may increase.

Top Glove last week reported a 22 percent quarter-on-quarter drop in sales revenue to RM4.16bn ($ 1.01bn), but up 147% year-on-year. The company attributed weaker earnings in the third quarter to higher latex prices and a 16% drop in average glove sales.

“There will always be a correction from all the summits,” Top Glove CEO Lee Meow told the Financial Times.

The company said the decline in revenue in the third quarter came from a U.S. ban. North American sales volumes – the largest Top Glove market that pays the highest prices for gloves – fell 68 percent in the third quarter.

The group has had to lower prices to attract buyers in new markets, said Malaysian capital’s analyst Ng Chi Hoong Affin Hwang. Top Glove “was forced to look for new ways to make up for the gap left by the US market.”

The U.S. order, which highlighted allegations of forced labor linked to the Malaysian glove industry, has delayed a proposal by the company to provide the Hong Kong list of $ 1 billion for “a few more months,” Top Glove’s Lim said. call for profit.

The company addressed Customs and Border Protection concerns and the agency was “waiting” to verify Top Glove’s payment and repair practices, he said. The U.S. agency told the Financial Times that it was in talks with Top Glove, adding that these types of requests were only removed when it was proven that forced labor was no longer used.

The ban on U.S. imports came after a Top Glove employee Covid-19 died the outbreak spread to the company’s factories and staff rooms last year, when the Malaysian authorities at the time were full, uncomfortable and inadequate for ventilation. The occurrence has been contained ever since.

Top Glove, which employs nearly 12,000 foreign workers in Malaysia, said it is investing RM200m in additional rooms for 14,200 workers. The conditions of his shelters met or exceeded the requirements of a new Malaysian law on workers ’housing that came into force last year, he said.

Norges Bank Norwegian Management, which oversees Norway’s $ 1.3 million oil fund, voted against the selection of several directors in January at its annual Top Glove meeting. The fund has a $ 0.89% stake in Top Glove and has declined to comment.

Asked about the vote, Lee said institutional investors are “probably not so happy” with “what happened last year,” adding that he is working to improve engagement with shareholder companies.

Top Glove’s Lim has said the U.S. ban is “temporary,” but analysts don’t see it being lifted until the end of the year.

“Even if [Top Glove] Guided by the fact that the International Labor Organization has corrected all the indicators, we only hope to lift the ban by 2021, ”said Affin Hwang of the Ng Capital.

Patrick Stokvis, vice president of research firm Third Bridge, said in a report that the study on Top Glove’s work practices “will continue to drive costs among Malaysian rubber handmade manufacturers”. This would erode cost advantages over Chinese competitors.

Top Glove’s Lee, however, predicted that demand for its products would be strong while countries were accumulating gloves in anticipation of future health crises.

The president of the Malaysian Rubber Glove Manufacturers Association, Supramaniam Shanmugam, has said that the consumption of gloves as a result of vaccines will not expire. He added that the pandemic, like the 2003 Sars outbreaks, would boost demand for long-term protective equipment.

The association estimates that worldwide demand will increase by 18-27 per cent in 2021 to 420 thousand gloves, and Malaysia produces about two-thirds of them.

Analysts believe that Top Glove seems to have corrected allegations of forced labor, saying the U.S. ban should be lifted to allay concerns for investors.

“What we’ve done in the past isn’t enough,” Lee of Top Glove admitted.