Top Glove to perform better in Q4 FY18 on lower raw material prices and stronger US dollar

Latex gloves on hand-shaped molds move along an automated system on the production line at a Top Glove Corp. factory in Setia Alam, Selangor, Malaysia, on Thursday, Dec. 3, 2015. Top Glove, the world's biggest rubber-glove maker commanding over a quarter of the market, expects to conclude at least one acquisition in the fiscal year through August as the Malaysian company seeks to maintain record earnings momentum. Photographer: Charles Pertwee/Bloomberg

KUALA LUMPUR: Top Glove Corp Bhd is expected to turn in an overall better set of results for its fourth quarter financial year 2018 (Q4 FY18) amid the legal dispute the glove maker is embroiled in.  

UOB Kay Hian on Wednesday said it expect a better overall performance with quarterly revenue coming in at  about RM1.2bil and core profit of between RM130mil and RM140m (+2%-10% q-o-q/+61%-74% y-o-y) despite some mixed signals and save for the potential one-off impairment.  

“This is premised on the back of lower raw material prices, strong US dollar, and commissioning of 30 new lines at Factory 31. Recall that Top Glove registered top and bottom lines of RM1.1bil and RM127mil in Q3 FY18 respectively with lesser impact from the above mentioned developments,’’ it said.

Top Glove, which is the biggest of Malaysia’s 10 publicly listed rubber glove-makers by revenue, is slated to release its Q4 FY18 results sometime in the middle of this month. 

The brokerage is not making changes to its FY18 earnings forecast, but has revised up its FY19-20 estimates by 4%-6% on higher US dollar forex assumption (+3% to RM4.18/US$ from RM4.08/US$).

Key upside risks include recovering the RM640m from Adventa Capital, market share gains, more bona fide sizeable value-accretive mergers and acquisitions and US dollar appreciating markedly versus the ringgit.

On the legal dispute, the research house added it was going to be a long drawn-out fight. 

More recently, Top Glove obtained a new interim Mareva injunction (premised on fresh message evidence) to freeze and prevent dissipation of assets
worldwide against the vendors of Aspion. 

The next court hearing takes place on the 29th of this month. Besides, there could be a material one-off impairment in the upcoming Q4 FY18
results pertaining to the overvaluation for the purchase of Aspion. Recall that Top Glove is seeking an amount of RM640mil.

UOB Kay Hian is maintaining a Sell call on the counter with a higher target price of RM8.20 from RM7.80 due to higher earnings forecasts.