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Mon, Oct 12, 2020 – 11:53 am
UPDATED Mon, Oct 12, 2020 – 12:43 pm
GLOVE’s maker, Top Glove Corporation, might be in the spotlight now for environmental, social and governance (ESG) risks, but those risks should diminish over the years, Maybank Kim Eng (Maybank KE) said.
The company is “leading the industry in setting policies to mitigate these risks,” analyst Lee Yen Ling said in a report.
“In our view, ESG risk should decline over the years as it leverages its strong balance sheet and invests in automation to reduce its dependency on work.”
In mid-July, the US Customs and Border Protection (CBP) unit issued two Top Glove subsidiaries with a detainer order on imports, also known as a detainer release order (WRO). Ms Lee notes that certain improvements have been made since then, including a payment of RM 136 million to its 11,300 migrant workers or 90 per cent of the factory’s total workers, as well as an expansion of the worker space in hostels to meet Malaysian standards. new minimum standard.
The company’s social problems were also in the spotlight when Malaysian authorities raided its factory two days before the US decision on the grounds that the company had breached movement control orders, such as social distancing at the location of work, and had reduced the space for workers. In response, Top Glove said that it has continuously maintained good labor practices and has complied with the requirements of labor laws and best practices.
For now, Ms Lee anticipates that the WRO could be lifted by the end of 2020 as the company appears to have “met all of the expectations of the US CBP, barring the remediation fees” that are ongoing.
“In the meantime, the gloves produced have been diverted to other markets and therefore there was no significant impact on Top Glove’s sales volume,” he added.
For now, the brokerage seems to think that Top Glove has met the requirements on all three ESG components.
On the environmental front, Ms Lee highlighted Top Glove’s goals of reducing electricity consumption by 14% and intensity of gas consumption by 21% by fiscal year 2024, through investments in solar energy systems and improvements in manufacturing processes.
The group also has targets to reduce the intensity of water use by 12 percent by fiscal year 2020 through its reverse osmosis water treatment plant, as well as reduce the generation of scheduled waste by 5 percent to fiscal year 2029 to meet the Malaysian Environment Department’s requirements and maintain quality. in standard B.
When it comes to social issues, Top Glove has implemented a zero-cost recruitment policy since 2019 to ensure that its migrant workers are not charged recruitment fees and are not held in debt bondage.
According to Malaysian labor law, Top Glove workers do not work overtime of more than 104 hours per month and are given one day off per week, and they also receive a monthly net pay of RM1,600, higher than the minimum wage. of RM1,200 according to the laws.
Meanwhile, Top Glove’s board consists of 12 members, seven of whom are independent non-executive directors, who meet the 50 percent minimum requirement. The company also has five female directors on the board of directors, and in 42 percent of the board’s constitution, this exceeds the minimum requirement of 30 percent. Ernst and Young has also been the company’s external auditor for more than 15 years.
Overall, Ms Lee noted that Top Glove “meets international ESG standards” and remains “committed to enhancing the well-being of its workers” with “good corporate governance.”
“As Top Glove is the world’s largest rubber glove manufacturer and the entire industry faces the same ESG challenges, we expect Top Glove to pass the rising cost of compliance,” he said.
For its fiscal fourth quarter ending in August, Top Glove posted record earnings and revenue figures amid a surge in demand for gloves, with a net profit increasing by 1,646 percent to RM1.29 billion (S $ 422.1 millions). Quarterly revenue also increased 162% to RM3.1 billion amid strong demand growth in Asia, Western Europe and Eastern Europe.
The brokerage has reiterated its “buy” rating on Top Glove Corporation with an unchanged price target of RM9.53, which represents a 17 percent advantage for the Malaysian glove maker.
At 11:21 a.m., Top Glove shares listed in Singapore and Malaysia are trading at 2.88 Singapore dollars on the Singapore Stock Exchange, an increase of 0.35 percent or a Singapore penny.
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