US import ban bursts ‘top glove’ bubble

Top Glove appeared to be the culmination of a strong if turbulent 12 months when the world’s largest rubber glove maker was named Asia’s Best Employer by a magazine for its fifth year in March.

Shares in the Malaysian manufacturer of personal protective equipment have risen more than 500 percent since reports of the new coronavirus emerged in China a year ago.

However, the stock price was affected by the approval of the vaccines at the end of 2020. Then the day after the award in March, US Customs and Border Protection announced Reservation order of Top Glove products upon arrival in US ports due to allegations that the company used forced labor.

The US accusations have tarnished the luster of the fortunes of one of the world’s largest beneficiaries of the pandemic. The rise of the company was rapid in the early days of Covid-19, this Lim Wei Chai, founder and president of Top Glove, saw his fortune nearly triple in the 12 months to April to $3.5 billion, according to ForbesWhich makes him the eighth richest person in Malaysia.

Today, regardless of the seizure order in the United States, the company’s outlook is affected by the rapid spread of vaccines in developed markets, which could reduce demand for Top Glove products, and increase competition from low-cost Chinese producers.

Top Glove last week reported a 22 percent quarterly drop in sales revenue to RM4.16 billion ($1.01 billion), although it was still up 147 percent year on year. The company attributed the weak profit in the third quarter to an increase in latex prices and a 16 percent drop in the average selling price of gloves.

“From every top there will always be a correction,” Top Glove managing director Lee Kim Miao told the Financial Times.

The company also said the decline in revenue in the third quarter stemmed from the US ban. Sales volumes in North America — Top Glove’s biggest market and which pays the highest prices for its gloves — fell 68 percent in the third quarter.

Ng Chee Huong, an analyst at Avene Hwang Capital in Malaysia, said the group likely had to cut its prices to attract buyers in new markets. Top Glove “has been forced to look for new ways to fill the void left by the US market”.

Lim Wei Chai,

Lim Wei Chai, founder and president of Top Glove, saw his fortune nearly triple in the 12 months to April to $3.5 billion as demand for rubber gloves increased due to the coronavirus. © Kiyoshi Ota / Bloomberg

The US order, which highlighted allegations of forced labor that have been linked to the glove industry in Malaysia for years, also delayed a proposal by the company to hold a $1 billion listing in Hong Kong for “a few more months,” according to Top Glove’s Lim. Profit call.

He said the company addressed CBP concerns and was “just waiting” for the agency to verify Top Glove’s payment and processing practices. The US agency told the Financial Times it was in talks with Top Glove, adding that these types of requests were only filed when there was evidence that forced labor was not used.

The US import ban came after a Top Glove employee Died from Covid-19 Last year, an outbreak of the disease spread to the company’s factories and workers’ dormitories, which Malaysian authorities described at the time as overcrowded, uncomfortable and lacking proper ventilation. The outbreak has since been contained.

Top Glove, which has nearly 12,000 foreign workers in Malaysia, said it is investing RM200 million in additional dormitories for 14,200 employees. She added that conditions in her homes were now complying with or exceeding the requirements of the new Malaysian law on worker housing, which came into force last year.

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

Sales volume by geographic region (%) bar chart showing US tariffs squeezing Top Glove sales in North America

When asked about the vote, Lee said institutional investors “may not have been very comfortable” with what happened last year, adding that the company was working to improve engagement with shareholders.

Top Gloves Lim said the US ban was “temporary” but analysts did not see it being lifted until the end of the year.

“although [Top Glove] Based on that they have corrected all the indicators by the ILO, we only expect the ban to be lifted by the end of 2021.

Patrick Stockvis, vice president of research firm Third Bridge, said in a report that scrutiny of Top Glove’s labor practices “will continue to drive up costs across rubber glove manufacturers in Malaysia.” This is likely to erode its cost advantages over Chinese competitors.

However, Top Glove’s Lee expected demand for its products to remain strong as countries stockpiled the gloves in anticipation of future health crises.

Subramaniam Shanmugam, president of the Malaysian Rubber Glove Manufacturers Association, said glove consumption would not go away as a result of vaccines. He added that a pandemic, like the 2003 SARS outbreak, would stimulate long-term demand for protective equipment.

The association estimated that global demand in 2021 would rise by 18-27 percent to 420 billion gloves, with Malaysia producing about two-thirds.

While Top Glove appears to have addressed allegations of forced labor, analysts believe, the US ban needs to be lifted to allay investor fears.

“What we’ve done in the past isn’t good enough,” Top Glove’s admitted to me.

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