TOPGLOV (7113) - Top Glove Corporation - A strong 2Q
Target RM6.00 (Stock Rating: ADD)
Top Glove's 1HFY15 core net profit came in above our (meeting 58% of full-year forecast) and consensus’s expectations (meeting 56%). Revenue rose 1.6% while net profit jumped 22.6% yoy, driven by higher sales volume, better operating efficiency, higher interest income, turnaround of its China operations, a stronger US$ and weaker raw material prices. We lift our FY15-17 EPS forecasts to factor in its new capacity, higher interest income and operating efficiency, and lower raw material prices. Our target price, which is still based on 16.8x CY16 P/E (20% discount to Hartalega), rises accordingly. We maintain Add on Top Glove with strong demand and a stronger US$/RM as the potential re-rating catalysts. As usual, no dividend was declared.
Strong 2Q results
Top Glove’s 1HFY15 revenue edged up 1.6%, mainly due the 4.5% increase in sales volume from latex powdered, nitrile and surgical gloves that offset the drop in selling prices. In Sep 2014, the group added 0.6bn/annum new capacity while it added another 1.6bn/annum new capacity in Feb 2015. Despite the higher capacity, its utilisation rate improved from 70% in 1HFY14 to 74% in 1HFY15. Core net profit (+22.6% yoy) grew much faster than revenue, thanks to (1) higher operating efficiency and internal cost control measures, (2) better margins arising from newer and more efficient glove machineries and factories, (3) higher net interest income, and (4) the turnaround of its China operations (RM3m profit in 1HFY15 vs. RM10.6m loss in 1HFY14 post consolidation). The stronger US$ and lower raw material prices have also helped to boost the bottomline. If not for the bigger losses reported by its associate, Value Add Sdn Bhd (RM5.4m loss vs. RM0.8m profit last year) due to unrealised forex losses from its borrowings as the US$ strengthened against the RM, Top Glove’s net profit growth would have been stronger. On a qoq basis, revenue grew 0.8% while core net profit increased 9.9%. The stronger performance was driven by the stronger US$, higher operating efficiency and lower raw material prices.
More expansions in the pipeline
Due to the strong demand, Top Glove decided to add new production lines in Factory 27 (nitrile) in Lukut and Factory 6 (natural rubber) in Thailand. The new lines are expected to be completed by FY16. Its existing expansion plan for factory 30 will be completed by Sept 2016. Upon completion of these new lines, total production capacity will be raised from 44.6bn to 52.2bn/annum in FY17.
Source: CIMB Daybreak - 19 March 2015
Target RM6.00 (Stock Rating: ADD)
Top Glove's 1HFY15 core net profit came in above our (meeting 58% of full-year forecast) and consensus’s expectations (meeting 56%). Revenue rose 1.6% while net profit jumped 22.6% yoy, driven by higher sales volume, better operating efficiency, higher interest income, turnaround of its China operations, a stronger US$ and weaker raw material prices. We lift our FY15-17 EPS forecasts to factor in its new capacity, higher interest income and operating efficiency, and lower raw material prices. Our target price, which is still based on 16.8x CY16 P/E (20% discount to Hartalega), rises accordingly. We maintain Add on Top Glove with strong demand and a stronger US$/RM as the potential re-rating catalysts. As usual, no dividend was declared.
Strong 2Q results
Top Glove’s 1HFY15 revenue edged up 1.6%, mainly due the 4.5% increase in sales volume from latex powdered, nitrile and surgical gloves that offset the drop in selling prices. In Sep 2014, the group added 0.6bn/annum new capacity while it added another 1.6bn/annum new capacity in Feb 2015. Despite the higher capacity, its utilisation rate improved from 70% in 1HFY14 to 74% in 1HFY15. Core net profit (+22.6% yoy) grew much faster than revenue, thanks to (1) higher operating efficiency and internal cost control measures, (2) better margins arising from newer and more efficient glove machineries and factories, (3) higher net interest income, and (4) the turnaround of its China operations (RM3m profit in 1HFY15 vs. RM10.6m loss in 1HFY14 post consolidation). The stronger US$ and lower raw material prices have also helped to boost the bottomline. If not for the bigger losses reported by its associate, Value Add Sdn Bhd (RM5.4m loss vs. RM0.8m profit last year) due to unrealised forex losses from its borrowings as the US$ strengthened against the RM, Top Glove’s net profit growth would have been stronger. On a qoq basis, revenue grew 0.8% while core net profit increased 9.9%. The stronger performance was driven by the stronger US$, higher operating efficiency and lower raw material prices.
More expansions in the pipeline
Due to the strong demand, Top Glove decided to add new production lines in Factory 27 (nitrile) in Lukut and Factory 6 (natural rubber) in Thailand. The new lines are expected to be completed by FY16. Its existing expansion plan for factory 30 will be completed by Sept 2016. Upon completion of these new lines, total production capacity will be raised from 44.6bn to 52.2bn/annum in FY17.
Source: CIMB Daybreak - 19 March 2015
