BIMB upgrades Top Glove to Hold, TP at RM4.20

KUALA LUMPUR: BIMB research has reduced its earnings forecast for Top Glove Corp Bhd for FY19/20 to account for lower average selling price (ASP) and a slight delay in its expansion plans of Factory 32 as well as higher-than-expected operating cost.

BIMB noted that Top Glove is expected to ramp up its expansion plan mainly on nitrile gloves by 34% by end 2020. 

"We are cautious on higher competition from incoming nitrile additional capacity which may cause ASP to come under pressure, " it said.

"Additionally, the weaker USD outlook would add pressure in the near term."

It slashed earnings estimates for FY19 by 10.5% and FY20 by 12%, and derived a lower target price of RM4.20 from RM5 perviously following the revision.

"Given downside of 5% based on our TP - coupled with a 21% decline in share price YTF - we upgrade our call to Hold from Sell," it said.

BIMB added that EBITDA margin was expected to remain stable at 17% as Aspion could turn profitable in 2H19.

Top Glove announced its 2QFY19 earnings last week, which showed PATAMI falling 4% quarter-on-quarter (q-o-q) to RM105.8mil on lower sales as ASPs dropped on pricing pressure and lower cost pass through.

1HFY19 PATAMI grew a slight 0.6% year-on-year (y-o-y) due to higher interest cost and effective tax rate despite a 27.7% jump in sales y-o-y.