Top Glove-linked Teratai Cluster: Here's what you need to know

WHAT HAS HAPPENED TO TOP GLOVE?

The world’s largest manufacturer of gloves will temporarily shut down 28 factories in stages due to a significant increase in COVID-19 cases among its workers.
Top Glove's factories are located along Jalan Teratai in Meru, Klang. Hence, the cluster linked to the workers is called the Teratai Cluster.

WHAT’S THE LATEST?

The Teratai cluster contributed the largest number of new positive cases on Monday, with 1,067 out of 1,884 positive cases nationwide, a record high in Malaysia.
As of Monday, 2,524 positive cases have been reported to be relating to the cluster, out of a total of 5,767 individuals screened. What it means is that almost one in every two people tested in Teratai cluster have been positive
Health director-general Tan Sri Dr Noor Hisham Abdullah said that the virus has spread beyond the factory worker’s circle, infecting individuals aged between two and 68.

Police guard the hostel of Top Glove, world's largest glove maker, after more than 2,000 workers tested positive for COVID-19 in Meru, Selangor state, Malaysia, November 24, 2020. REUTERS/Ebrahim Harris

WHAT IS THE IMPACT TO TOP GLOVE?

Shares of the company fell as much as 55 sen or 7.48% to RM6.80 in Tuesday’s morning trade.
Top Glove has 47 factories across Malaysia, Thailand, China and Vietnam, with a total workforce of 21,000 people. It is estimated that around 8,000 are based in Klang.
Top Glove commands a quarter of the global latex glove market. Malaysian manufacturers produce about 65 percent of the world's supply for rubber gloves.
The company posted record net profit of RM1.29 billion for the fourth quarter ended August 31. That’s a 1,646 percent increase compared with RM74.2 million a year ago, driven by surging demand for disposable rubber gloves amid the COVID-19 pandemic.

WHAT ARE ANALYSTS SAYING?

Hong Leong Investment Bank Research maintains BUY with a decreased Target Price of RM10.38 (from RM10.95), saying “While we are still unsure on the factories’ closure schedule and timeline, we expect some disruption in production for 2 weeks to a month. Also, Top Glove is said to be ramping up production in their other factories; however as most factories are already running close to full capacity, we reckon it would be tough to make up for the shortfall from the affected factories”
CIMB Research keeps its ADD call and Target Price of RM10.00, saying “We understand that 28 factories are located in Meru, Klang, 19 of which are glove factories and nine factories are for production of glove-related supplies (formers) and condoms. Based on our estimates, Top Glove’s Klang factories contribute up to 50% of its total current production capacity (90 billion pieces per annum).”
CIMB Research adds: “Assuming that all 28 plants in Meru, Klang (total of 45 billion pieces per annum), are not operational for a duration of two weeks, we estimate that the impact on our FY21F net profit forecast will be -1.9%. Note that for every week that all 28 plants are non-operational, our FY21F net profit estimate for Top Glove will be reduced by another 0.9%”
AmInvest maintains HOLD call with a Target Price of RM7.88, saying “The company has not revealed the monetary loss resulting from this closure. However, based on our rough estimates, assuming 19 of the 36 glove production factories operating in Meru, Klang are closed for 2 weeks, the total impact to Top Glove’s revenue will be around 2% which is not significant.”

Top Glove workers wait in line for food distribution outside a hostel under enhanced lockdown, amid the coronavirus disease (COVID-19) outbreak in Klang, Malaysia November 17, 2020. REUTERS/Lim Huey Teng