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KUALA LUMPUR (Nov 18): CGS-CIMB Securities Sdn Bhd estimates its Top Glove Corp Bhd revenue and net profit forecasts for the financial year ending Aug 31, 2021 (FY21) will see a negative impact of 1.3% and 1.8% respectively after the The rubber glove manufacturer said the 14-day Covid-19-driven Enhanced Motion Control (EMCO) order from yesterday (Nov 17) to Nov 30, 2020 in the bedrooms of group-specific foreign workers in Meru, Klang, Selangor, affects about 5,700 workers in the company.
“This represents about 27% of our 21,000 total employees,” Top Glove said in a statement yesterday.
Today, CGS-CIMB analyst Walter Aw said that the 5,700 estimated workers represent 34.5% of Top Glove’s estimated production workforce of 16,500 employees.
“Assuming the EMCO is implemented during the stipulated two weeks, we estimate that its impact on our fiscal year 21F net income and profit forecasts will be -1.3% and -1.8%, respectively.
“Keep in mind that for each week that EMCO is rolled out for these 5,700 workers, our estimate of fiscal year 21F net profit for TOPG will be reduced by another 0.7%,” Aw said.
“We understand that the 5,700 affected workers, who are mostly foreign labor, will not be able to work in the factories during EMCO. As a result, Top Glove factories are likely to operate at reduced capacities in the next two weeks,” he said.
Aw said CGS-CIMB, however, believes Top Glove should be able to mitigate the impact of this EMCO through various initiatives, including accelerating the hiring of temporary and permanent local workers to compensate for the loss of these foreign workers.
Additionally, Aw said CGS-CIMB believes Top Glove will be able to make up for delays once these 5,700 workers return to work.
“Top Glove does not expect any order cancellations or penalty payments to its customers due to late delivery of orders as a result of this EMCO.
“We make no changes to our EPS estimates for fiscal year 21-23F, as we believe the impact of this EMCO will be minimal. We also reiterate our Add option, with a TP (target price) of RM10.00, based on 17x CY22F P / E (in line with its 5-year historical average).
“We continue to like Top Glove for being the main beneficiary of increased demand for gloves due to the Covid-19 pandemic, given its position as the world’s largest glove manufacturer,” he said.
In Bursa Malaysia today, Top Glove’s share price fell 13 sen or 1.86% at 11:41 a.m. to 6.87 yuan, which values the company at approximately 55.58 billion ringgit. The stock saw some 27 million shares traded.
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