KUALA LUMPUR: The US Customer and Border Protection (CBP) announced on March 29 that certain disposable gloves had been manufactured by Top Glove Corporation Bhd with the use of convict, forced or indentured labour.
Earlier on July 15 last year, the CBP issued a withhold release order on disposable gloves manufactured by Top Glove.
Analysts said the latest news would result in cloudier earnings certainty and negative investor sentiment for the company.
Hong Leong Investment Bank Bhd (HLIB) said the news was an unfortunate negative as all goods found to have been produced by convict, forced or indentured labour would not be permitted to be imported by the US.
"While this news is undoubtedly negative, we understand Top Glove are in contact with the CBP to obtain more information on this finding.
"As such, we keep our forecasts unchanged for the time being," it said.
The firm said since allegations were made against Top Glove in mid-2020, Top Glove had taken extensive remedial action to improve its labour practices.
This included remediation payments to workers, blacklisting unethical recruitment agents, enhancing labour accommodations and ensuring workers are not tasked with excessive overtime.
Furthermore, it said Top Glove had shared that an independent international consultant had concluded on March 9 that the company's actions "do not amount to systematic forced labour"
"While this ruling may result in Top Glove being prohibited from exporting products to the US for the time being, note that Covid-19 cases rebounding recently may provide support for Top Glove's sales and share price," it said.
After tweaking its valuation methodology to reflect potential sentiment from this unfortunate news, HLIB's target price on Top Glove fell from RM8.14 to RM7.00.
"We maintain 'Buy' on Top Glove as we reckon the weak share price performance alongside undemanding valuations has somewhat reflected the negatives," it said.