PublicInvest maintains earnings estimates on Top Glove on robust FY18 results

KUALA LUMPUR: PublicInvest Research maintained its earnings estimates on Top Glove Corp Bhd following the announcement of robust growth in the latter's fourth quarter earnings.

THe research house maintained its neutral call on the counter with an unchanged target price of RM10.

The glove manufactuerer reported revenue and net profit growth of 23.6% and 32% year-on-year in FY18 driven by sales volume growth with high utilisation rate and improvement in operation efficiency, which drove down cost levels. 

"As a result, EBITDA margin has improved by 2.2 ppts to 16.4%. FY18 sales growth was mainly driven by stronger demand for latex gloves from developing regions," said PublicInvest.

The research house noted that the bulk of the group's sales in FY18 was mainly driven by developing regions ioncluding Asia ex-Japan, Eastern EUrope, Middle East and Africa.

"For Asia ex-Japan especially, demand growth from China, India and Vietnam surpassed 100% in FY18, though coming from small base. 

"China accounts for 4% of the Group’s total sales in FY18 (from 2% in FY17) while India made up 2% of the Group’s total sales in FY18 (from 1% in FY17)."

Driven by rising healthcare awareness and hygiene standards, the sales growth in developing regions resulted in Top Glove's latex powdered glove sales volume growing 24% year-on-year in FY18 after three straight years of declines.

With regards to Aspion's goodwill impairment test, PublicInvest said Top Glove will not require an impairment provision based on sensitivity analysis based on different levels of WACC and terminal growth rate.

"The net projected profit for the impairment test range from RM40m (FY19F) to RM65m (FY23F)," it said.

The research house said Top Glove is confident in its ability to enhance Aspion's contribution going forwards vi the allocation of additional resources, and further improvement of glove production process, synergies and cost savings.