KUALA LUMPUR (March 31): A fire broke out at Top Glove Bhd’s Lukut factory in Negeri Sembilan on Thursday (March 30), MIDF Research said in a note, which affected 60% of the factory’s production capacity.

MIDF Research said the fire caused severe damage to production equipment and inventory, adding that the factory has a production capacity of 3.2 billion pieces of nitrile gloves or 4% versus total capacity of 80 billion.

However, it noted that the group's average utilisation rate stood at only 32% in the first quarter of this year.

“Hence the impact on the total production capacity is minimal given that the company can move orders to other factories,” the research outfit said.

Top Glove is currently assessing the full damage, MIDF Research said. The group has fire insurance for the factory, which could be sufficient to compensate for the damage, it added.

“However, we are cognizant that the process for filing an insurance claim typically involves a lengthy reimbursement process,” it added.

According Oriental Daily, the fire started at 5am Thursday and took nearly three hours to extinguish with almost 60% of the production facility damaged.

It is reported that the fire was caused by a broken oil pipe.

“We make no changes to our forecast, for now, pending more information about the damages,” said MIDF.

The research firm remains cautious about Top Glove’s FY2024 (financial year ending Aug 31, 2024) outlook mainly due to the limited room to pass on the increased cost via greater price hikes as customers can easily switch to other glovemakers that offer competitive prices.

“Besides, we think that the group may remain in the red for the next one-two quarters before attaining break-even due to the margin compression on the back of the ongoing oversupply of glove situation and rising input costs,” it said.

MIDF’s target price on the counter is premised on unchanged FY2024’s Book Value Per Share (BVPS) of 86 sen against its 5-year historical -1.5 standard deviation price-to-book value of 0.64 times.

Shares of Top Glove shares shed 2.59% or 2.5 sen to 94 sen per share at the time of writing, giving the company a market capitalisation of RM7.64 billion.