KUALA LUMPUR: PublicInvest Research said Top Glove Corp Bhd
's results were within expectations with a commendable performance driven by strong demand growth from emerging markets and improvements in the manufacturing process.
It maintained its neutral call on the counter with a target price of RM10.65 from RM9.70 previously.
The research house said it maintained its forecasts for FY18F but raiseds its earnings estimates by about 7% for FY19-20F to account for stronger demand from emerging markets due to rising healthcare awareness and hygiene standards.
"The high utilisation rate of close to 90% (compared to 80% in the previous corresponding period) coupled with improvements in production efficiency has led to better cost efficiencies, and hence the operating margin improved to 13.4% in 3QFY18 (+2.7 ppts)."
With regards to its purchase of Aspion, PublicInvest said it contributed about two months' revenue of RM97mil.
"However, the Group’s PAT was lowered by RM3m with the acquisition as the finance cost and acquisition-related transaction cost has outstripped Aspion’s contribution.
"Currently the integration of the two businesses is in progress and Top Glove is working on to derive more synergies via cost savings and cross selling. Note that Aspion’s utilisation rate is currently low at slightly below 70%."
The research house also said raw material prices were lower on year with average natural rubber and nitrile prices easing.
Vinyl glove average selling price, however, was driven up in March due to the temporary supply disruption although this is expected to normalise from June onwards.
"Top Glove aims to achieve 30% glove market share in 2020. With current market share (post-acquisition of Aspion) stands at 27%, the remaining 3% is expected to achieve via both organic growth (such as capturing growth in emerging markets demand, penetrating into more markets, capacity growth and improvements in manufacturing process) and inorganic growth (such as M&As or JVs)."
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