MARC Ratings has affirmed Top Glove Corporation Bhd’s (Top Glove) corporate credit rating at AA+ and concurrently affirmed its wholly-owned TG Excellence Berhad’s RM3.0 billion Perpetual Sukuk Wakalah Programme rating at AA-IS(CG). The ratings outlook is stable. The rating on the perpetual sukuk reflects its subordination to Top Glove group’s senior unsecured obligations.
Top Glove’s leading global market position in glove manufacturing and very strong cash flow generation remain key rating drivers. The rating considers the group’s ample liquidity position relative to its financial obligations. Moderating factors are the rising global competition in the industry that may crimp margins, and the challenges associated with labour-related issues. We note that Top Glove has resolved its recent labour issues highlighted by the US government through remediation payments to workers and improving living conditions at its facilities. However, it remains vulnerable to actions on perceived violations of labour-related issues.
For the first half of the financial year ending August 31, 2022 (1HFY2022), Top Glove recorded lower revenue and pre-tax profit of RM3.0 billion and RM371.1 million as compared to RM10.1 billion and RM6.8 billion in the corresponding period last year. The decline largely reflects easing concerns on the pandemic globally, contributing to sharply reduced selling price to a more normalised level amid lower restocking activities. Sales volume was also partly affected by the import ban order imposed by the US government which has since been rescinded. Nonetheless, increased awareness of hygiene issues as well as expected recovery in sales to the US, would remain supportive of sales demand. Operating profit margin has remained healthy at 12.3% during 1HFY2022.
Top Glove’s balance sheet has been further strengthened with a sharp increase in equity base to RM6.9 billion as at end-1HFY2022 (end-FY2019: RM2.6 billion), providing strong adjusted debt-to-equity at 0.20x. With cash balance of RM1.3 billion, the group is in a net cash position. Its capital structure is very likely to remain strong in the near term as its expansion to increase annual production capacity to 131 billion pieces by end-2023 from the current 100 billion pieces is expected to be funded internally. For now, the group has deferred its listing in Hong Kong which was expected to generate proceeds of about RM1.5 billion.