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I am reproducing the TOPGLOV Briefing Material receive from Telegram to my blog.

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Compile here for my own record.

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View of ASP trend, has it bottomed, further price decline?

• YoY drastic % decline
• QoQ % 5% decline -> slower pace of decilne
• Close to bottom
• Oct pricing expect 5% increase - cost passthrough mechanism

Biggest threat to the industry

• Current situation - loss making, not reflecting of situation of the glove industry potential
• Adjustment period now
• Nothing affecting fundamental
• No substitute
• Demand will be back (gloves are disposable item) in the next 6 months once stock is cleared
• Supply going through consolidation, expansion deferred

View on competition from Chinese players, overtake Malaysian manufacturers, overcome supply threat

• Competition is tough but is good
• Don’t think Chinese can overtake
• Malaysian 65% of work market share (nitrile and NR); China has 20% market share; Thailand has about 10%
• Need support from govt - to not cause a rise in cost of doing business
• Need foreign workers to compete with Chinese workers
• Affected by forced labour issues; customers moved orders to Chinese players
• Expect orders to come back to malaysia

Capex for FY23?

• past 2.5 years glove production rise too much especially china (+200-300%); Malaysia up by 20-30%
• Reduce capex and production line
• China stopped expansion early this year
• Built factories very fast; built in 3 months (Malaysia takes 2-3 years)
• When market slowed down they stopped faster
• Production capacity and utilisation rate reduced to 50% and below (like malaysia)
• TopG capex lowered significantly (by half)

Recover to pre covid level situation

• Consumption still improving about 10% year
• Issue is with supply
• Reduce supply by cutting down
• May take 3-6 months to reduce supply to use up inventory -> to normalised
• Glove price to them has reached the bottom, starting to go up
• Up by 5% - revenues should increase by 5% (RM15m) per quarter

ASP - up by 5% - which type or broad base, reception on price increase

• ASP increase more practical
• tried to increase in March but there was still profit margin, competitors were still able to reduce price
• In Aug/Sept/Oct are selling below cost
• Need an initiator to raise prices
• Need to raise price to cover cost
• Adds RM50m to revenues
• Not reducing value of stock anymore

4Q in the red, affect dividend policy?

• maintain 50% payout ratio subject to conditions
• Cash flow position
• Want to preserve cash - halted final dividend

Inventory write down going forward?

• due to 56% downward ASP trend
• Less likelihood of this to happen

4Q22 utilisation rate; breakeven rate

• 40% to 40%+
• Breakeven utilisation - depend on ASP

Customer response to higher ASP

• don’t want to lose money
• Rather let others lose money
• Willing to lose market share

ASP for 4Q?

• Average ASP close to US$24
• Latex at US$22+
• Nitrile at US$21+

When inventory level will deplete?

• next 6 months

Future factory automation; how to lower cost and increase margins

• automation - investments
• Minimise errors
• Reduce rejects

First time quarterly loss?

• yes

Threat from US glove manufacturing

• Not much threat, cost of production is double Malaysia player
• Some nitrile glove selling at US$16-18

When do you think volumes will recover?

• Depends on inventory reducing

Push back from customers on price hike?

• some resistance
• Has to pass down some of the costs
• Labour costs
• RM1000 ->RM1200 ->1500
• China, Vietnam all raised min wages
• Energy costs have also gone up

Cash decelerating, raise funds?

• 4Q OCF still positive
• 31 Aug cash position RM950m
• No plan to raise funds
• Banking facilities, can raise borrowings

Competitive advantage of malaysia - energy cost

• heating system has been improved
• Heat exchange
• Recovery hot water before discharging to the drain
• Energy cost improvement
• Better burner, air flow rate
• Coal is not a long term solution
• 2016-17 china banned coal, converted to natural gas

Cost control?

• manpower costs one of the big chunk of cost
• Rationalise production facilities
• Reduce vis natural attrition
• Foreign workers go back, local workers look for other jobs

Concluding remarks

• Difficult year
• Last for a while longer, but not lost
• Waiting for demand and supply mechanism to reach back to equilibrium
• New FY, focus on rationalising cost