Top Glove’s (TOPG) 3QFY25 core net profit of RM2.3m dropped from 2QFY25’s core net profit of RM23.3m, bringing 9MFY25 CNP to RM4.1m. The reported numbers missed expectations, accounting for only 31.0% and 5.0% of ours and the markets full-year forecasts.
Key deviations were due to weaker-than-expected demand improvements, higher-than-expected finance costs and depreciation expenses.
Glove industry outlook remains volatile due to tariff uncertainties, prolonged intensifying Chinese competition in non-US markets, and potential growing oversupply.
Re-iterate HOLD recommendation with a target price of RM0.78, based on P/B multiple of 1.1x pegged to FY26F BVPS of RM0.70.
Missed expectations. Excluding exceptional items, such as gain on disposal of PPE (-RM29.7m), reversal of inventory write-downs (-RM6.8m), and other adjustments (+RM4.0m), Top Glove Corporation Bhd's (TOPG) 3QFY25 core net profit (CNP) of RM2.3m (-90% qoq) came in below expectations. 9MFY25 core net profit of RM4.1m accounts for only 31% of our full-year forecast and a mere 5% of the consensus estimate. The earnings miss was due to weaker-than-expected demand improvements, and higher-than-anticipated finance costs and depreciation expenses.
YoY. 3QFY25 CNP stood at RM2.3m a significant improvement from the core net loss (CNL) of RM58.2m in 3QFY24. Turnaround was primarily lifted by a 30% increase in sales recognition compared to the same period last year. Overall, latex and nitrile glove saw a 26% yoy and 58% yoy improvement in sales respectively. Growth is attributed to continued market share gains in North America following the Biden administration's tariff announcement on Chinese glovemakers in Sep 2024, coupled with restocking activity following inventory depletion in the region.
QoQ. CNP decline 90.0% qoq from the previous quarter. The significant drop was impacted by lower sales volume (-6% qoq) and a 4.5% decrease in blended ASP from a weakening of USD, a massive 341.0% increase in finance costs, and a 1.4% rise in depreciation expenses.
YTD. For 9MFY25, TOPG has posted a CNP of RM4.1m compared to a CNL of RM173.0m in 9MFY24. The improvement was primarily driven by a 98% yoy increase in nitrile glove sales, Biden administration's tariff announcement on Chinese glovemakers in Sep 2024 and 125% tariff imposed on Chinese gloves in Apr 2025. Additionally, increased utilisation rates and improved blended ASP (+1.6% yoy) further contributed to TOPG's enhanced profitability in 9MFY25.
Outlook. Looking ahead, the Malaysian rubber products sector faces a challenging outlook, pressured by intense international competition (due to US tariffs and expanding Chinese capacity), subdued demand, and rising domestic costs. During the analyst briefing, TOPG's management indicated the Group are able to apply for a 5% SST exemption on imported latex. Also, the 2% EPF contribution impact on foreign workers would be approximately RM200k a month, which constitutes a negligible impact of c.0.1% on the ASP.
Despite tighter competition and exchange rate headwinds, TOPG targets to maintain ASP at c.USD17-19 per 1,000 pieces in 2HCY25. Natural rubber prices may ease slightly, while nitrile butadiene rubber demand is set to grow in tandem with the higher raw material costs.
Earnings Revision. Despite the disappointing earnings, we are keeping our forecast unchanged. We believe orders are expected to grow by c.15% in the coming quarters, as our channel checks indicate that capacity and utilisation rates at Chinese nitrile glove factories have been reduced from 80% to 60%, leading to low supply. Coupled with the uncertainty caused by US tariffs, TOPG is well-positioned to benefit if a supply shortage occurs in the coming months.
Valuation. Re-iterate our HOLD recommendation on TOPG with an unchanged target price of RM0.78. Our valuation is based on a 1.1x P/B multiple applied to our FY26F BVPS of RM0.70, with no ESG premium or discount given TOPG's three-star ESG rating. We would consider revising our forecast and multiple upon seeing more concrete margin improvements.
Risk. Volatility in raw material prices and currency exchange rates will impact ASPs and margins.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.183060 | 4.216312 |
| EUR | 4.958391 | 4.963526 |
| CNY | 0.586424 | 0.587025 |
| HKD | 0.533038 | 0.536820 |
| SGD | 3.293088 | 3.316333 |