Top Glove reported 3QFY25 core net losses of RM2.3m (2QFY25: RM23.3m core profit) due to lower revenue of RM830.3m (-6% q-o-q). Earnings came in weaker than expected despite improving volume sales (+5% q-o-q) as blended ASP (- 5% q-o-q) faced challenges, particularly in non-US markets.
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That said, a strong recovery is still anticipated in 4QFY25 as US demand improves after earlier frontloaded inventories are depleted.
Mixed operating parameters in 3QFY25.
3QFY25 volume sales strengthened 5% q-o-q, reflecting a modest demand recovery from customers. Nevertheless, Top Glove charted declining revenue and core profitability as ASP contracted 5% q-o-q to around US$19/’000 pcs due to intensifying competition from China competitors. This was also dragged by softening MYR/US$ rates (-1.7% q-o-q) despite lower raw material costs (-1% q-o-q per carton).
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Management guiding potential 15-20% volume sales improvement in 4QFY25.
We understand that Top Glove’s June utilisation rate improved to 65% (2QFY25: 61%).
Management estimates that 4QFY25 demand will see strong improvement as US distributors’ overstocked inventories are near depletion. The coming quarters’ earnings growth will be supported by:
higher US sales mix (3QFY25:26%) with higher ASP,
declining raw material costs and natural gas tariffs, and
margin expansion on better efficiency and utilisation rate.
Against the backdrop of these tailwinds, Top Glove’s earnings are on the cusp of a progressive earnings recovery throughout 4QFY25-FY26.
US distributors to resume orders as overstocked inventories depleting.
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Above is an excerpt from a report by UOB Kay Hian Research. Clients of UOB Kay Hian may be the first to access the full PDF report @ https://www.utrade.com.sg/.
