TOPGLOV (7113) : Top Glove Corporation - Better showing
Target RM4.31 (Stock Rating: HOLD)
Top Glove’s 1QFY15 core net profit was within expectations, at 28% of our forecast and 27% of consensus’ estimates. Revenue dropped 1.1% due to lower selling prices, while core net profit improved 5.5% with the turnaround of its China business. We maintain our FY15-17 net profit forecasts and our Hold call but our target price falls to RM4.31 (13.5x CY16 P/E, a 20% discount to Hartalega’s target P/E) as Top Glove’s target P/E is cut in line with that of Hartalega and the market. No dividend was declared, in line with our expectations. We prefer Kossan for exposure to the sector.
Turnaround of China operations boosts 1Q net profit
Top Glove’s 1QFY15 revenue declined 1.1%, mainly due to the weaker selling prices resulting from lower natural latex (-24.5% yoy) and nitrile (-1%) costs, which offset the effects of higher sales volume (utilisation rate improved from 70% in 1QFY14 to 75% in 1QFY15; sales volume grew 4%). Core net profit (excluding fair value loss on foreign exchange contracts of RM3.9m) however grew 5.5% as its China vinyl gloves business turned around, with a RM1.5m profit in 1QFY15 vs. a RM5.2m loss in 1QFY14. Although raw material prices declined and the USD strengthened against the RM, the positive impact from these factors on nitrile gloves was not substantial given the more intense competition that resulted in Top Glove sharing some of the cost savings with its customers. The favourable factors however had some positive impact on natural rubber gloves’ margins given the less intense competition in the natural rubber gloves segment. On a qoq basis, given the marginally higher sales volume (+1%) in both segments, the lower 1Q revenue (-2%) was due to the lower raw material prices (natural latex -12.1%, nitrile -4.6%). PBT grew ~20% mainly driven by the higher margin from latex gloves on lower latex prices and stronger USD against RM.
More new nitrile capacity coming on-stream
An additional six nitrile glove production lines at Factory 27 in Lukut started operations in Sep 2014. The group is targeting to complete the installation of production lines at Factory 29 and commence operations by Jan 2015. This will boost its production capacity from the current 42.6bn to 44.6bn pieces of gloves per annum.
Source: CIMB Daybreak - 17 December 2014
Target RM4.31 (Stock Rating: HOLD)
Top Glove’s 1QFY15 core net profit was within expectations, at 28% of our forecast and 27% of consensus’ estimates. Revenue dropped 1.1% due to lower selling prices, while core net profit improved 5.5% with the turnaround of its China business. We maintain our FY15-17 net profit forecasts and our Hold call but our target price falls to RM4.31 (13.5x CY16 P/E, a 20% discount to Hartalega’s target P/E) as Top Glove’s target P/E is cut in line with that of Hartalega and the market. No dividend was declared, in line with our expectations. We prefer Kossan for exposure to the sector.
Turnaround of China operations boosts 1Q net profit
Top Glove’s 1QFY15 revenue declined 1.1%, mainly due to the weaker selling prices resulting from lower natural latex (-24.5% yoy) and nitrile (-1%) costs, which offset the effects of higher sales volume (utilisation rate improved from 70% in 1QFY14 to 75% in 1QFY15; sales volume grew 4%). Core net profit (excluding fair value loss on foreign exchange contracts of RM3.9m) however grew 5.5% as its China vinyl gloves business turned around, with a RM1.5m profit in 1QFY15 vs. a RM5.2m loss in 1QFY14. Although raw material prices declined and the USD strengthened against the RM, the positive impact from these factors on nitrile gloves was not substantial given the more intense competition that resulted in Top Glove sharing some of the cost savings with its customers. The favourable factors however had some positive impact on natural rubber gloves’ margins given the less intense competition in the natural rubber gloves segment. On a qoq basis, given the marginally higher sales volume (+1%) in both segments, the lower 1Q revenue (-2%) was due to the lower raw material prices (natural latex -12.1%, nitrile -4.6%). PBT grew ~20% mainly driven by the higher margin from latex gloves on lower latex prices and stronger USD against RM.
More new nitrile capacity coming on-stream
An additional six nitrile glove production lines at Factory 27 in Lukut started operations in Sep 2014. The group is targeting to complete the installation of production lines at Factory 29 and commence operations by Jan 2015. This will boost its production capacity from the current 42.6bn to 44.6bn pieces of gloves per annum.
Source: CIMB Daybreak - 17 December 2014
