Kenanga Research
KUALA LUMPUR: Maybank Investment Bank Research sees more upside for Malaysian glove makers.
It said on Tuesday it now benchmarks glove stocks against the sector’s 12 month forward price-to-earnings ratio (PER) on its unchanged 2019 EPS forecasts.
After taking into account the key metrics (that is margin, return on equity), it ascribed the following PER targets:
For Hartalega
, it accorded 33 times PER (from 31 times) deriving a new target price (TP) of RM5.20 (+6%). Maintain sell.
As for Top Glove, 30 times PER (from 24 times) deriving a new TP of RM12.90 (+30%). Upgrade to Buy (from Hold).
Maybank Research accorded Kossan 26 times PER (from 24 times) deriving a new TP of RM9.20 (+8%). Maintain Buy.
It said despite the ringgit’s strength against the US dollar in January-April 2018 (+3.4%) and flattish on-quarter aggregate core earnings in 1Q18 (+2.2% on-quarter, +23.3% on-year), the sector’s weighted average 12M forward PER has expanded to 33 times (from 30 times in end-December 2017).
“We attribute the multiple expansion to fund flows, liquidity-enhancing corporate exercises (i.e. bonus issues, share split) and EPS-accretive acquisition (i.e. acquisition of Aspion by Top Glove),” it said.
Maybank Research thinks the presently high valuation could stay in 2H18 on its expectation for capacity expansion-led earnings growth.
It expects aggregate core net profit of the three glove stocks under its coverage to expand +19.1% in 2018, triple its research universe’s +6.8% core earnings growth forecast.
“Additionally, we believe the consolidation of Aspion’s earnings from 3QFY8/18 (March-May 2018) would see Top Glove’s earnings base surpass that of Hartalega in 4QFY8/18 (Jun-Aug 2018) and propel further re-rating,” it said.
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