Report ID 605389004696 Popularity 81 views 11 downloads 
Report Date Apr 2022 Product  
Company / Issuer TG Excellence Bhd Sector Industrial Products
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Rating action     
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. TG Excellence is a wholly-owned special purpose subsidiary of Top Glove. As the perpetual sukuk it issued is unconditionally and irrevocably guaranteed by Top Glove, the rating assessment is premised on the credit strength of Top Glove.

The rating affirmation is driven by Top Glove’s leading market position in glove manufacturing globally, as well as its very strong cash flow generation and liquidity position relative to its financial obligations. Moderating factors are the rising global competition in the glove manufacturing industry that may crimp margins, and the challenges associated with labour-related issues. 

We note that while Top Glove has resolved its recent labour issues highlighted by the US government, along with other manufacturers employing sizable foreign labour, it remains vulnerable to action from governments and non-governmental bodies’ alike on perceived violations of labour-related issues. In the US-related action, Top Glove’s exports to the country were banned until the US government felt satisfied by the remedial actions undertaken by the group. Top Glove has addressed the perceived labour grievances through providing remediation payments to workers and improving living conditions at its facilities, among other measures.

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 compared to RM10.1 billion and RM6.8 billion in the previous corresponding period. 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. The group’s sales volume was also partly affected by the import ban order imposed by the US government which has since been rescinded.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.

MARC Ratings notes that Top Glove’s already strong balance sheet has notably strengthened with a sharp increase in equity base to RM6.9 billion as at end-1HFY2022 (end-FY2019: RM2.6 billion), providing a strong adjusted debt-to-equity (DE) ratio 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 foreseeable future 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. Should it proceed with the listing, it will further strengthen its liquidity position.

Rating outlook    
The stable ratings outlook reflects our expectation that Top Glove will continue to maintain its healthy cash flow generation to meet its financial obligations and fund expansions. 

Rating trajectory

Upside scenario     
Any upgrade would be guided by sustained strong operating performance and balance sheet strength, underpinned by a high governance level that is acceptable to stakeholders.

Downside scenario     
Downside risk to the ratings would materialise if there is a substantial deterioration in financial performance and liquidity, resulting from disruptions to exports and/or undertaking acquisitions not related.

Key strengths
World’s largest glove manufacturer
Very strong liquidity position
Healthy debt coverage metrics
Low client concentration risk

Key risks
Exposure to raw material costs and foreign exchange rates
Increased competition in the glove manufacturing industry
Vulnerable to labour-related issues