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KUALA LUMPUR (September 18): RHB Investment Bank has increased its Top Glove Corp Bhd earnings forecast for fiscal 2021 (FY21) and FY22 by 156% and 84% to RM9.46 billion and RM7.26 billion million, respectively, assuming the gloves would fetch average selling prices (ASP) of $ 49 to $ 61 per 1,000 pieces.
“However, we maintain our forecast earnings for fiscal year 23 of RM4.49 billion, assuming a long-term unchanged ASP of US $ 37.00 per 1,000 units,” said Alan Lim, analyst at RHB Investment Bank.
“We believe the long-term ASP should be at the equilibrium level that inefficient new entrants should be operating at. We expect earnings to see a significant jump in fiscal 21, but decline in fiscal 22 and 23. Earnings growth should resume from fiscal 24. to volume growth with flat ASP, “he said today in a research note.
Top Glove’s net profit soared 417% YoY in FY20 to RM1.86 billion, while revenue increased to RM7.23 billion from RM4.8 billion in FY19 as demand for gloves from rubber soared amid the Covid-19 pandemic.
For the fourth quarter of FY20 (4QFY20), net profit stood at RM1.29 billion, compared to RM74.16 million in 4QFY19, while revenue was RM3.1 billion versus RM1.18 billion. previously.
In making the announcement yesterday, Top Glove said that FY20 financial results were “an unsurpassed performance in a year like no other, with more upside potential in expected demand,” adding that the group was also expecting new highs in FY21.
MIDF Research said the rubber glove maker’s product mix has enabled it to meet different requirements from its various customers.
He said that due to the limited supply of nitrile butadiene and the long lead time of the nitrile gloves (the spot order for the nitrile gloves has been fully placed within the next three months), some customers have decided to switch to gloves. Natural rubber without powder, as well as extruded thermoplastic gloves.
The discount between natural rubber gloves and nitrile gloves is expected to decrease in the future if more customers choose to purchase natural rubber gloves.
“On the other hand, natural rubber prices have been fairly stable. Its vinyl glove segment, which is mainly destined for the Chinese market, has also seen a big increase in ASP. Production activities are going well at its manufacturing plant. Vietnam, with new production lines arriving monthly, “he said.
MIDF also believes that Top Glove’s broad geographic presence allows it to sell to multiple markets, as the number of active cases globally may experience a different urgency in demand along the way.
He said the high level of cash bodes well for the expansion plan and reduces financial costs. The company has used the order deposits to fully pay off its syndicated loans worth RM654 million. It has also converted 87% of its RM710 million convertible bonds into ordinary shares.
Its net cash of 2.3 billion ringgit at the end of August enables it to finance its expansion plans and dividend payments. From the cash pile, it has earmarked RM 1.9 billion for capital expenditures, including 13 double front lines and three single front lines for calendar year 2020 (CY20) and 56 double front lines in CY21.
Both will add another 19 billion pieces of gloves to their capacity.
Following the optimistic outlook, RHB Investment Bank and MIDF make a “buy” call for Top Glove.
However, despite making a “buy” call, RHB Investment said that it lowers its price target (TP) for Top Glove to RM9.50 as it reduces long-term terminal growth to 1% from 3 % previous.
“We believe that the higher-than-expected increase in ASP will encourage new entrants to the glove sector, therefore the long-term growth assumption has been reduced for Top Glove.”
MIDF, on the other hand, increases its TP to RM9.63 from RM9.31.
“We believe the premium is justified by its leadership position, market share and business growth cycle. We believe glove demand is likely to remain strong in the coming quarters due to a steady number of active cases and increased awareness. hygiene.
“We also like Top Glove for its product and geographic diversification, which allows it to mitigate any potential business risk in any particular market or product segment,” he added.
At 9.18am, Top Glove was up 26 sen to RM8.05 with a total of 18.55 million shares traded.
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