Top Glove remains a 'value buy', says Kenanga

KUALA LUMPUR: Top Glove Corp Bhd remains a value buy despite the US Customs and Border Protection determining a finding of forced labour in the group's production of disposable gloves, says Kenanga Research.

"In the short term, we believe that any loss in its US market share should be offset by demand from other countries, as the number of global COVID-19 cases remains high.

"Pending the outcome of the CBP review, we maintain our earnings estimates, at this juncture," it said.

The research house said it maintained its FY21-23 earnings forecasts on Top Glove.

From an ESG standpoint, the news is negative among investors, although there is a lack of earnings impact.

However, Kenanga's target price of RM6.80 has priced in 10% ESG and operating risk discounts.

Top Glove said yesterday in a filing with Bursa Malaysia it was unable to ascertain the quantum of the impact of the issue on its financial and operation performance at this juncture.

In 1HFY21, the group's sales volume in North America accounted for 22% of its total sales volume.

Top Glove's share price has fallen 46% since its peak recorded in October 2020.

The stock is trading at 3.8x FY21F P/E, and offers a about 17% dividend yield.

By using an expected trough earnings per share for FY23F, it is trading at a FY23 price-earnings of 10.2x (-0.72SD, or at a 42% discount from its average of 18x).
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