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KUALA LUMPUR (December 8): Top Glove Corp Bhd will announce its results for the September-November quarter (1QFY21) tomorrow (December 9). The investment fraternity is expecting a record quarter with a net profit of no less than RM2 billion.
On top of that, Top Glove shareholders are probably also expecting a big dividend check given the super profit made.
According to Bloomberg, the average annual profit forecast for the financial year ending August 31, 2021 (FY21) is RM8.61 billion among the 19 investment analysts tracking the world’s largest manufacturer of rubber gloves. This means that Top Glove will have to generate a net profit of RM 2.15 billion on average for each quarter to meet the market consensus estimate.
A quarterly net profit of RM2.150 billion would translate into growth of 66.4% from the all-time high of RM1.29 billion in the previous quarter ended August 31 (4QFY20). The jump would be even more impressive in year-on-year terms, being 19 times higher compared to 111.43 million RM a year ago.
Similarly, the market expects Top Glove to post record annual revenue with a consensus estimate of RM19.74 billion, which means the company is expected to achieve RM 4.94 billion in quarterly revenue amid expectations of RM4.94 billion. soaring sales volume and considerably higher average sales prices. . Top Glove’s revenue was RM3.11 billion in 4QFY20 and RM1.21 billion in 1QFY19.
According to Bloomberg, most analysts are bullish on Top Glove and 15 of them have a buy rating or equivalent (75%), while four have calls waiting (20%) and one has a sell rating (5%) .
Among them, Maybank Kim Eng analyst Lee Yen Lin is the most optimistic analyst, estimating that Top Glove will post an annual net profit of RM11.22 billion in fiscal year 21, equivalent to RM2.81 billion per each quarter, while the most bearish projection is annual earnings of RM4.72 billion, or RM1.18 billion per quarter.
Some commented that the first quarter financial earnings are critical for the group, as its production in the following quarter is currently affected by the Covid-19 outbreak among its workers.
When contacted, Vincent Lau, Research Vice President at Rakuten Trade Sdn Bhd, said that Top Glove can expect record earnings for its 1QFY21 and estimated that it would be in line with the market consensus of over RM2 billion, supported by economies of scale. growth for glove production coupled with an uptrend in glove average selling prices (ASP), as glove demand remained high following growth in Covid-19 boxes globally.
Geoffrey Ng, investment advisor and director of Fortress Capital Asset Management (M) Sdn Bhd, has a similar opinion and agreed that Top Glove could post record profits in 1TFY21, despite the problem of its foreign worker shelters, which resulted in Klang factory stoppage for a month due to the imposition of the Enhanced Movement Control Order (EMCO), from November 17 to December 14.
In summary, Top Glove previously estimated that temporary closings would only reduce its fiscal year 21 sales revenue by about 3%. The figure was derived after taking into account an expected EMCO of three weeks, and the expectation that 50% of its production will be affected. It also added that it did not anticipate any major order cancellations due to temporary closures.
To put things in perspective, both Hartalega Holdings Bhd and Supermax Corp Bhd have seen exponential growth in their latest quarterly results, respectively, supported by higher ASPs for gloves and continued strong demand for gloves.
Hartalega’s net profit jumped five times to its best quarterly earnings of RM 544.96 million for the second quarter ended September 30, 2020 from RM 103.87 million recorded a year ago. Quarterly revenue increased almost 90% to RM1.35 billion from RM709.42 million. On a quarter-on-quarter basis (quarter-on-quarter), its net profit grew more than two times from RM219.72 million and revenue also increased by 46.29% from RM920.09 million.
Supermax, which has recently been added to the FBM KLCI 30 components, saw its net profit increase nearly 32 times to a record quarterly net profit of RM789.52 million for the first quarter ended September 30, 2020, from RM24.75 million a year ago. Quarterly revenue increased more than three times to RM1.35 billion, from RM369.94 million. On a quarter-on-quarter basis, its net profit increased almost twice from RM399.62 million in the fourth quarter ended June 30, 2020, and revenue also grew 45.57% from RM929.12 million.
Do record earnings come with extraordinary dividends?
In the context of superprofit, Top Glove’s cash pile is exploding. As such, Ng of Fortress Capital believes the company can afford to pay special dividends to shareholders in the form of cash.
Ng does not rule out the possibility of paying dividends in kind by distributing its treasury shares that it bought back on the open market.
The company has spent RM1.28 billion on share buyback exercise since September, an amount that exceeded its cash balance of RM1.21 billion as of August 31.
Its net outstanding own shares amounted to 177.78 million or equivalent to a 2.17% stake as of December 2.
Its Chairman, Tan Sri, Dr. Lim Wee Chai, has committed to delivering a dividend yield of at least 6% for fiscal year 21 in light of the optimistic earnings outlook.
In summary, the board declared a dividend of 11.83 sen / share for fiscal year 20, compared to 2.5 sen in fiscal year 19.
Based on the Top Glove closing price of RM6.60 yesterday, a 6% dividend yield will translate into a dividend per share of 39.6 sen.
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