KUALA LUMPUR: Shares in Top Glove Corp Bhd fell over 4% in early trade Friday after it posted a lower net profit of RM15.29mil in the third quarter ended May 31 (3Q22) from RM2.04bil in the same quarter last year.
The glove maker fell 4.1%, or five sen to RM1.17, its lowest so far this year with 19.7 million shares done.
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In the first nine months to May 31, Top Glove posted a net profit of RM288.56mil, down 96% from RM7.26bil a year earlier while revenue dropped 69% to RM4.5bil against RM14.28bil achieved last year.
In post-results updates on Friday, most analysts have trimmed their earnings forecast and target prices (TP) on Top Glove.
MIDF said Top Glove’s net profit for 9MFY22 of RM288.6mil came in below expectations at 30% of the house and 58% of consensus FY22 estimates.
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“We revise down our forecast earnings for FY22F, FY23F and FY24F by -47.6%, -36.4% and -15.7% respectively in view of the declining average selling prices (ASPs) which severely impacted 3QFY22 earnings.
“Going forward, ASPs are expected to remain on a downward trend due to increasing vaccination rollout around the world and rising competition in the gloves industry,” the research house.
MIDF said due to the downward earnings revision, its TP is revised lower to RM1.29 (previously RM1.75) based on FY23F earnings of 7.7sen multiplied by PER multiple of 16.7x. The dividend yield is estimated at 2.5% for FY22F.
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Kenanga Research said Top Glove’s 9MFY22 net profit came in at RM288.6mil (-96% YoY) which is below expectations at 55%/54% of its/consensus full-year forecasts, due to lower-than-expected margins as input raw material costs fell slower than the sharper fall in ASP.
“This prompts us to cut our FY22E/FY23E net profit by 40%/37%. TP is also lowered from RM1.30 to RM0.95 based on 22x FY23E EPS, a 30% premium to peers’ average largely to reflect its bigger market capitalisation. Reiterate underperform,” it added.
Hong Leong Investment Bank (HLIB) has lowered its projections for FY22-24f by 18-47%, as it cut utilisation rates forecast for FY22f/23f/24f to 60%/ 78%/81%, to better reflect the tough operating environment.
“Consequently, our TP is lowered to RM0.82 (from RM1.12), representing a PE multiple of 17.3x (at mean to its 5-year pre-pandemic average) on its FY23f EPS of 4.8 sen. Reiterate ‘sell’ on Top Glove,” it said.
HLIB opined that the headwinds faced (higher operating costs and utilisation rates below pre-pandemic levels) by gloves players currently will persist for a bit longer, given that the demand-supply imbalance has yet to normalise.
“That said, we think that utilisation rate may still see small improvements on a QoQ basis, as the sales volume to the US continues to recover. Also, the end of wintering season and lower demand from glove manufacturers should lead to soft er latex and nitrile butadiene raw material prices going forward.
“Besides, we note that some of the smaller glove players in the market are looking to exit the industry completely due to the intense competition and tough operating environment. While this would help ease the oversupply situation slightly, we reckon that concerted effort from all major glove makers is still required to normalise the demand-supply mismatch.
“Top Glove has also indicated that it is not in a hurry to acquire more glove plants, as it still has idle capacity to be filled currently,” it said.
