Top Glove shares sank after the U.S. Customs and Border Protection ordered personnel at U.S. ports of entry to seize its gloves made in Malaysia, putting pressure on the world’s biggest glove maker to improve its labor practices.
The stock fell 5.4% in Kuala Lumpur Tuesday to the lowest close since March 2, the biggest decliner on the main equities gauge. Trading volume was 145% of its three-month average. The shares have plunged 50% from an October high.
The move is a blow to Top Glove and comes as Malaysia’s main industries — palm oil and gloves — grapple with intense scrutiny over poor labor practices. The CBP banned imports of Sime Darby Plantation, the world’s largest palm planter in December, citing allegations of forced labor. It took similar action on planter rival FGV Holdings.
Top Glove, which is seeking a listing in Hong Kong to bolster its profile with overseas investors, was one of the biggest winners of the global pandemic for much of 2020 until vaccine rollouts sapped its appeal. The CBP order hasn’t derailed the proposed listing, the company said in a late evening reply to an e-mailed query.
The CBP Office of Trade, in consultation with the Treasury Department, said Monday that it imposed the penalties against the Malaysian firm after having found “sufficient information to believe that Top Glove uses forced labor in the production of disposable gloves.” The order expands a directive last year banning imports from two units of the company.
The Withhold Release Order that CBP issued in July 2020 was based on reasonable but not conclusive information that multiple forced labor indicators exist in Top Glove’s production process, it said.
“Today’s forced labor finding is the result of a months-long CBP investigation aimed at preventing goods made by modern slavery from entering U.S. commerce,” Troy Miller, senior official performing the duties of the CBP Commissioner, said in a statement.
North America accounts for 22% of Top Glove’s total sales volume, Kenanga Investment Bank, said in a report dated March 30.
Factories belonging to Top Glove were found to be a major source of covid infections in Malaysia last year. The government in November ordered the company to shut 28 of its factories in phases after discovering thousands of new cases there, and carried out raids on its dormitories. Its workers hail from countries like Bangladesh and Nepal.
Top Glove said in a statement Tuesday it’s U.S. counsels are liaising with CBP representatives to get more clarity and information. It’s unable to ascertain the quantum on financial and operational impacts arising from the order, it added.
The company also said a report prepared by an independent international consultant to CBP earlier this month viewed that “further progress” has been made and considering Top Glove’s ongoing actions, the findings didn’t amount to systemic forced labor.
In October, Top Glove said it had resolved issues highlighted by the U.S. Department of Labor and was seeking an expeditious resolution and revocation of the ban on exporting its products to the country.
The news is an “unfortunate negative” and results in “cloudier earnings certainty and negative investor sentiment,” Gan Huan Wen, an analyst at Hong Leong Investment Bank Bhd., said in a report dated Monday. He cut his stock-price target to 7 ringgit from 8.14 ringgit.
Monday’s finding is the second forced labor finding the CBP has issued in the current fiscal year. U.S. Customs and Border Protection has ensured the enforcement action against Top Glove “will not have a significant impact on total U.S. imports of disposable gloves,” John Leonard, CBP Acting Executive Assistant Commissioner for Trade, said in the statement.