KUALA LUMPUR: Top Glove Corp Bhd shares tumbled yesterday after the government ordered the staggered closure of its factories.
Despite the selling pressure, some analysts kept their "buy" call on the stock as the closure would likely push Top Glove's and industry average selling prices of rubber gloves higher on potential supply disruption.
The stock fell as much as 55 sen or 7.48 per cent to RM6.80 during the morning trade, a two-month low, amid announcement of the closure of 28 of its factories in Klang, Selangor about half an hour before the market closed on Monday.
At midday break, the counter pared some losses at RM6.90, but still down 45 sen or 6.12 per cent from its Monday's closing of RM7.35.
Top Glove ended the day 55 sen or 7.48 per cent lower at RM6.80, being Bursa Malaysia's sixth top loser, with a market capitalisation of RM56.55 billion.
Despite the selling pressure, analysts said the closure was likely to push Top Glove's and industry average selling prices higher on potential supply disruption.
Kenanga Research said Top Glove's factories in Klang had been operating at less than 20 per cent utilisation since the Enhanced Movement Control Order (EMCO) was enforced.
"For illustration purposes, based on our back-of-the-envelope calculation, assuming all the Klang factories stopped production for two weeks, the loss in production is about two per cent," the firm said in a report.
Senior Minister (Security Cluster) Datuk Seri Ismail Sabri Yaakob announced on Monday that Top Glove's factories in Klang would cease operations in stages to allow factory workers to undergo screenings and mandatory quarantine to contain the spread of Covid-19 among its employees.
Top Glove, in a filing to Bursa Malaysia, confirmed that it would temporarily shut down 28 factories in Klang, following an insurgence of Covid-19 cases among its workers.
Top Glove, the world's largest glove manufacturer, has 41 factories in Malaysia.
Kenanga Research said Top Glove accounted for 25 per cent of global market share, and the situation would likely push the company's and industry ASPs higher given the potential supply disruption.
"Recall our financial years 2021 and 202 ASP assumptions of US$55 and US$40 per 1,000 pieces respectively compared to the current nitrile ASP of between US$70 to US$90," said the firm, which did not make changes to its earnings estimates on Top Glove pending further developments on the situation.
Kenanga Research has maintained its "outperform" call with a target price of RM10.68.
Hong Leong Investment Bank Bhd (HLIB) has maintained its "buy" call on Top Glove with a reduced target price of RM10.38 from RM10.95 as it was "slightly negative" on the closure.
HLIB said the closure was expected to affectc about 50 per cent of Top Glove's total capacity.
The firm cut its financial year 2021 earnings by 5.6 per cent to reflect in the temporary disruption, assuming one month of closure for the affected glove factories.
"As we understand, of the said 28 factories, 21 are glove factories and the remaining seven are no-nglove factories (i.e. producing condom, face mask, dental dam).
"Of the 21 glove factories, two are located further from the affected area whereas the remaining 19 factories in the area represents about 50 per cent (or 45 billion pieces) of Top Glove's total capacity," HLIB noted.