CIMB Research expects stronger results for Top Glove in second half


  • Business
  • Friday, 29 Mar 2019

FRIDAY, MARCH 16 KUALA LUMPUR- Halal Industry Development Corporation holds press conference on the World Halal Week 2018 at 0915 (0115 GMT) KUALA LUMPUR- Top Glove Corporation holds signing ceremony for the $310 million syndicated credit facilities at 1000 (0200 GMT)

KUALA LUMPUR: CIMB Equities Research expects Top Glove, the world’s biggest glove maker, to record stronger results in the second half of the current financial year ending Aug 31, 2019.

It said on Friday this would mainly be on better margins for latex gloves as it expects higher average selling prices (ASPs) for latex gloves to offset rising latex prices. 

“We also expect Top Glove’s sales volume to increase with the gradual commissioning of two new plants, F32 (2.2bn p.a. capacity) and F33 (1.2bn p.a.) from mid-3QFY19F onwards.

“The plants would boost Top Glove’s total production capacity by 5.7% to 63.7bn p.a. In addition, we believe Aspion’s earnings contribution should also gradually improve,” it said.

CIMB Research said despite facing heightened pricing pressure, Top Glove is confident the impact from that will be short-lived. 

Top Glove believes the sector's current capacity surplus will be well-absorbed as glove demand remains robust (sales volumes still healthy) and glove makers are making efforts to pace out the incoming new capacity.
 
Also, Top Glove expects any negative impact on its margins from pricing pressure will be mitigated by the ongoing efforts to increase its operating efficiencies through higher usage of automation and better cost control.

CIMB Research retained its Add call and RM5.08 target price, based on 24 times CY20F P/E (+1 s.d. of its five-year historical mean). 

“We are of the view Top Glove is appealing at its current valuation of 20.6 times CY20F P/E, given: i) its position as the world’s largest glove maker; ii) it is poised to benefit from the inelastic demand for gloves; and iii) its three-year EPS CAGR of 10.4% (FY19-21F). 

“Potential re-rating catalyst is weaker RM/US$. Key risks: heightened price competition, and sharp strengthening of ringgit vs. US$,” it said.
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