KUALA LUMPUR (Dec 18): PublicInvest Research has downgraded Top Glove Corp Bhd’s rating to "neutral" from "trading buy" as it lowered its target price (TP) to RM7.30 from RM9.70 as concerns remained over environmental, social and governance (ESG)-related issues.

The research house’s analyst Chua Siu Li said in a note today that she did not discount the fact that glove makers like Top Glove will continue to deliver record-breaking profit for the coming quarters as average selling prices (ASPs) are expected to increase by another 30% quarter-on-quarter (q-o-q) in the second quarter ending Feb 28, 2021 (2QFY21).

“However, with the ESG issues uncovered recently, we are incorporating a 20% ESG discount to our valuation of Top Glove, from a price-earnings multiple of 10.5 times previously, to eight times currently (at its five-year historical mean), taking into account lingering concerns over ESG-related issues,” she said, adding that her TP was subsequently lowered to RM7.30.

Chua cited Top Glove's numerous ESG-related issues that had made headlines, such as its failure to provide adequate accommodation for its factory workers as well as the sacking of a whistle-blower who had shared photographs showing a lack of physical distancing among workers outside its factories.

At 9.57am today, Top Glove had fallen five sen or 0.75% to RM6.65, valuing the company at RM54.51 billion.