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Glove Stock That Surged This Year Slumps on Plant Virus Closures

Bloomberg logo Bloomberg 11/24/2020 Yantoultra Ngui

(Bloomberg) -- Malaysia’s Top Glove Corp. that reaped a fortune making protective gear to fight Covid-19 now finds itself exposed to the very pandemic after its workers caught the virus, forcing authorities to temporarily shutter 28 of its factories.

The shares of the world’s biggest rubber-glove producer slumped 7.5% on Tuesday to a two-month low. Its factories will be closed in stages to allow workers to undergo screenings and quarantine, Defense Minister Ismail Sabri Yaakob told reporters on Monday, without saying when the closures would begin.

The order came shortly before the country posted a record 1,884 new infections on Monday, with as many as 1,067 cases coming from the Teratai cluster in Selangor that’s linked to Top Glove’s worker dormitories. Its impact on the company’s profitability may be limited, according to some analysts and fund managers.

graphical user interface, chart: Top Glove shares drop after Malaysia to shut some of its plants © Bloomberg Top Glove shares drop after Malaysia to shut some of its plants

“The market response to the closure is a knee-jerk reaction,” said Chua Zhu Lian, investment director at Fortress Capital Asset Management Sdn. in Kuala Lumpur. “The company may face some dip in profits, but the impact should be limited. The company will do its very best to restore operations as soon as possible.”

Profit Outlook

Top Glove in a statement Tuesday said some deliveries might get delayed by two to four weeks and forecast a 3% hit to its annual sales. Assuming that all 28 plants are shut for two weeks, CGS-CIMB Securities said it expects fiscal 2021 forecast profit to drop by 1.9%. The brokerage held its ‘add’ recommendation and the target price of 10 ringgit.

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AmInvestment Bank in a note said the company is ramping up production outside Klang to meet demand.

The stoppage comes at a time when the optimism about the global vaccine rollout next year has begun denting the glove sector’s dizzying rally. Top Glove has tumbled 21% this month, paring the year-to-date surge to 334%. Smaller rival Supermax Corp. has fallen 15%.

A spokesman at Bursa Malaysia Bhd. wasn’t immediately available to comment on whether the recent slide in glove makers’ shares pose a risk to the broader market.

Top Glove in a statement Monday said it had temporarily halted production at 16 facilities in Meru, Klang since Nov. 18, and the remaining 12 have been running below capacity. The company has more than 21,000 employees that churn out 90 billion gloves annually at 750 production lines.

(Adds company’s annual sales forecast in fifth paragraph.)

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