Top Glove: Is the most recent correction driven by ESG or other factors?
Synopsis: September has been hectic for the news flow and stock price driver events on Top Glove, a Malaysian rubber glove manufacturer and one of the global leaders in the industry. There were several important news items that EMAlpha AI-ML picked up. The stock price movement was also very interesting. In the second week of September, Top Glove announced that the US had lifted an import ban prompted by forced labor concerns and as of September 10, 2021, Top Glove’s products would be admissible at all US ports. The ban had been there for more than a year and as such the announcement came as a big relief for the company. However, the financial performance was below expectations when on 17th September 2021, Top Glove reported a 48% decline in its quarterly earnings as the revenue slumped 32%. More importantly, there are now concerns about profitability as the Covid-19 pandemic’s intensity has very much reduced, and globally, vaccination is progressing at a rapid pace. In a call to discuss the company’s latest financial results, Top Glove’s managing director Lee Kim Meow admitted that while FY2020 was an “abnormal” time during which the company booked higher sales and profits, things have somewhat normalized in the current FY2021 ended August. Top Glove’s stock price is down approximately 30% in the last one month and about 45% in the last six months, despite the company making good progress on some of the ESG issues like the usage of forced labor in their manufacturing facilities. This had led to a major impact in the last twelve months. EMAlpha investigates in this insight that while the Covid-19 gains have almost been fully wiped off for Top Glove, what was the major driving force in the most recent round of the stock’s underperformance? Has this happened because of ESG concerns or due to the fact that the stock price performance is also linked to the business fundamentals and profitability in the industry? As can be seen in the stock price of other rubber glove manufacturers like Supermax, Kossan and Hartalega as well, the market has not singled out Top Glove in the most recent round. Should this be seen as a sign that investors have finally moved on and they are instead looking at business fundamentals and not ESG? That is too early to say at this point.
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