Is it time to pick up Top Glove? Nope. I think the sentiment is not bad enough though most of the people already factor in several negative catalysts:
1. Rising latex price/lagging cost passing on
2. Industry excess capacity
3. Normalizing demand
4. Weak US $
(Business Times)For the quarter under review, Top Glove's revenue went down 9.2 per cent to RM491.5 million from RM541.4 million in the previous quarter.
Lim said average latex prices had risen 57 per cent from RM4.58 per kg in the first quarter of last year to RM7.20 per kg to date.
"Demand for rubber gloves, which has been normalising, coupled with the excess capacity situation, have impacted the industry," he added.
Lim noted that the average US dollar had weakened against the ringgit by 9.3 per cent (RM3.43 in the first quarter of 2010 versus RM3.11 in the first quarter of 2011).
Customers, he said, had kept their inventory at a minimum level due to the high selling price of latex gloves, which reflected the increasing cost of latex prices.
"We will share some of these higher costs with our customers, even though there will be a time lag for the higher cost to be passed down."
In efforts to mitigate the impact of latex prices, Top Glove will spend an estimated RM160 million to plant rubber trees in Cambodia, its first downstream plantation activity.
Covering a net area of 8,000 hectares and land concession of 70 years, Lim said planting will spread over six years.
Read more: Top Glove feels pinch of latex prices, weak dollar http://www.btimes.com.my/Current_News/BTIMES/articles/topgo/Article/#ixzz1Am4wlqxS
The other issue is I feel that they are running out of rooms to squeeze cost and begin to move upstream. A major change in strategy will always create uncertainty or risk. Is it a good move? I would think if you truly have pricing power, stick to what you know best -- making glove and not planting rubber trees.
No comments:
Post a Comment