Top Glove expects profit margins to normalize to 8%-10% from 50% at height of pandemic

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KUALA LUMPUR (March 9): Top Glove Corp Bhd expects net profit margin to return to normal levels of 8% to 10% in the future – well below the quarterly margin of 38% at 53% of the fiscal year ended August 31, 2021 (fiscal year 21).

While many new players have entered the glove industry over the past two years, which has caused oversupply, Top Glove Founder and Executive Chairman Tan Sri Lim Wee Chai pointed out that most of these new glove companies have slowed their expansion.

“This will reduce the supply and the demand for gloves will continue to improve. This is a good sign,” he commented during the virtual press conference in conjunction with the release of the company’s quarterly results.

However, Wee Chai, who owns a 27.24% stake in the company, remained cautious on the issue of oversupply of nitrile gloves as glove makers in China aggressively increased capacity over the past year. of the last two years.

The profit margin of glove makers including Top Glove has shrunk from the second half of 2021 as the tide has shifted from acute shortage to oversupply currently. [see chart]

The oversupply has created increasing pressure on average selling prices (ASP) of rubber gloves around the world.

Top Glove, however, expects ASPs to stabilize amid less aggressive price competition.

“Better ASPs will be supported by less aggressive price competition. Glove makers are unlikely to sell their new glove production at lower prices after exhausting their high inventory level,” its executive director Lim Cheong Guan said during the virtual press conference.

“For ASP, the pressure in the future is less. There may be other adjustments, but the percentage will be much less right now,” he said.

Cheong Guan expects the ASP of natural rubber gloves to increase as the demand for natural rubber gloves is good and the cost of latex has increased due to the winter season.

He also said the group would raise selling prices for natural rubber gloves to mitigate the impact of rising raw material prices.

However, for nitrile gloves, Cheong Guan said his ASPs remain under pressure in a competitive environment.

According to him, ASP nitrile gloves fell 26% quarter over quarter to $25 per 1,000 pieces in the second quarter ended February 28, 2022, while ASP natural rubber gloves fell 18% QoQ at US$21 (latex powder gloves) and US$26 per 1,000 pieces (non-latex powder gloves).

In terms of utilization rate, Top Glove expects the current production utilization rate of 76% to improve in the future.

“The increase in utilization rate is mainly due to shipments of nitrile gloves to the United States and Europe,” Wee Chai said.

He noted that a higher utilization rate should be able to mitigate the 3% increase in production costs.

“In addition, operational efficiency improvements will continue, through which we will reduce waste, reduce errors and use technology to help us do better. So part of the savings comes from this area as well,” added the founder.

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