Top Glove suffers 93% earnings drop, expects rebound

KUALA LUMPUR, Malaysia—Top Glove has gone through what it described as "one of the most challenging times" for the industry, but it expects a return to normal within a year.

Earnings for fiscal year ended Aug. 31 fell 93 percent year-on-year to $2.1 billion (RMB 10 billion), on 66-percent lower sales of $3.5 billion, the Malaysian gloves maker reported in a Nov. 15 investor's presentation.

The severe decline, according to Top Glove, was mainly due to a 25-percent drop in volumes and a downtrend in the average selling prices (ASPs).

Commenting on the results, Executive Chairman Lim Wee Chai said Top Glove had to manage glove oversupply arising from new capacity, along with the effects of excess stockpiling by customers during the pandemic.

There was "no urgency" on the part of customers to place sizeable orders, he said, while some adopted a "wait and see" approach in anticipation of a further decline in ASPs.

Meanwhile, operating costs continued to escalate due to global supply chain disruptions, as well as increases in natural gas prices and the minimum wage in Malaysia.

"A lower utilization rate has also meant our unit costs are higher," Lim said.

"We were unable to pass these cost increases on to customers amidst the ongoing oversupply situation, impacting our bottom line," he added.

According to the Top Glove boss, the market will require some time to adjust to the normalizing trend and for glove demand to gradually pick up.

For example, he said, hospitals still have glove stocks, which they are exhausting and are not buying at the moment, causing a temporary slowdown in orders.

As gloves remain a necessity in the medical industry and a disposable item, Lim said he expected existing stockpiles to eventually deplete and demand to return.

"Based on prevailing trends, we anticipate glove demand and ASPs are likely to rebalance within the next one year," he said.

To address the current pressure on margins, Top Glove is launching a cost rationalization plan, which aims to optimize cost, manpower and resources while continuing to improve operational effectiveness.

"In addition, we will take this opportunity to refurbish and upgrade our existing production lines, so we are strongly positioned for when the industry recovers," Lim said.