The US import ban blew up the Top Glove bubble

Top Glove looks like a strong և stormy 12 months ago, when in March the magazine named the world’s largest rubber glove manufacturer the best employer in Asia.

Shares of personal protective equipment in Malaysia have risen more than 500 percent since reports of a new coronavirus appeared in China a year ago.

However, the stock price hit vaccine approval by the end of 2020. Then, the day after the March Awards, US Customs and Border Protection ordered the confiscation Upon arrival in the US port of Top Glove, the company was accused of using forced labor.

The US allegations exposed the fortunes of one of the world’s largest corporate beneficiaries of the epidemic. The company grew so fast in the early days of Covid-19 that: Lim Wye Tea, The founder of Top Glove, saw how his fortune inflated almost three times in the 12 months to April to $ 3.5 billion. Forbes:Making him the eighth richest man in Malaysia.

Today, with the exception of the US confiscation order, the company’s prospects are dimmed by the rapid spread of vaccines in developed markets, the potential reduction in demand for Top Glove products, and increased competition from Chinese manufacturers at low prices.

Last week, Top Glove reported a 22 percent quarterly drop in sales revenue to 4.16 billion rubles ($ 1.01 billion), despite rising 147 percent year-on-year. The company attributed lower revenue in the third quarter to rising latex prices and a 16 percent drop in the average selling price of gloves.

“There will always be correction from every top,” Top Kim Glove CEO Lee Kim Miu told the Financial Times.

The company also said that the decline in revenue in the third quarter stemmed from the US ban. In North America, the largest market for Top Glove, which pays the highest prices for gloves, sales fell 68 percent in the third quarter.

The group was likely to have to lower its prices to attract buyers in new markets, said Ng Chi Hung, an analyst at Malaysia’s Affin Hwang Capital. Top Glove “had to look for new ways to make up for the emptiness left by the US market.”

Lim Way Tea,

Lim Wei Chai, head of Top Glove’s founding chair, saw his fortune inflate almost threefold in the 12 months of April to $ 3.5 billion as coronavirus increased demand for rubber gloves. © Kiyoshi Ota / Bloomberg

“The US order, which has highlighted allegations of forced labor linked to the Malaysian glove industry for years, has also delayed the company ‘s offer to postpone the $ 1 billion Hong Kong listing for’ a few months, ‘” Top Glove’s Lim said. h: earnings call.

“The company had applied to the Customs և Border Protection և պարզապես just ‘waiting’ agency to check Top Glove’s payment and recovery practices,” he said. The agency told the Financial Times that it was in talks with Top Glove, adding that such orders were withdrawn only when it was proven that no more forced labor had been used.

The ban on US imports came after a Top Glove employee died of Covid-19 last year, when an outbreak spread through the company’s factories, workers’ dormitories, which the Malaysian authorities at the time described as dense, inconvenient and lacking proper ventilation. The outbreak was prevented after that.

Top Glove, which employs nearly 12,000 foreign workers in Malaysia, said it was investing RM 200 million in additional dormitories with 14,200 staff. Conditions in his dormitories now met or exceeded the new Malaysian Workers’ Housing Act, which went into effect last year.

Norges Bank Investment Management, which oversees Norway’s $ 1.3 billion The oil fund voted against the election of several directors at the annual meeting of Top Glove in January. The fund, which owns 0.89 percent of Top Glove, is worth $ 109 million, declining to comment.

Sales volume chart by geography (%) showing US customs embargo on Top Glove North American sales

Asked about the vote, Lee said institutional investors were “probably not very comfortable” with “what happened last year”, adding that the company was working to improve cooperation with shareholders.

Top Glove’s Lim said the US ban was “temporary” but analysts did not see it lifted by the end of the year.

“Although [Top Glove] “Based on the fact that they have corrected all the indicators by the International Labor Organization, we only expect that the ban will be lifted by the end of 2021,” said Affin Hwang Capital

Patrick Stokvis, vice president of Third Bridge Research Company, said in a report that a study of Top Glove’s work practice “will continue to increase costs for Malaysian rubber glove manufacturers”. This could erode their cost advantages over Chinese competitors.

Top Glove Lee, however, predicted that demand for its products would remain strong as countries accumulate gloves in anticipation of future health crises.

Supersaniam Shanmugam, president of the Malaysian Rubber Glove Manufacturers Association, said the use of the gloves would not be reduced by vaccines. He mentioned that the epidemic, as in 2003. Outbreaks appear to be exacerbated during this time.

According to the association, in 2021 global demand will increase by 18-27% to 420 billion gloves, and Malaysia produces about two-thirds of them.

Although Top Glove covered allegations of forced labor, analysts say the US embargo should have been lifted to allay investor concerns.

“What we’ve done before is not good enough,” Lee told Top Glove.

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