Top Glove is the world’s largest rubber glove manufacturer that is listed on the Kuala Lumpur Stock Exchange. Despite its size, Top Glove had humble beginnings. Top Gloves’ diverse product range fulfil the demand for both the healthcare and non-healthcare segments.
Below are three main reasons why we like this company.
1. Strong Profitability Finesse
Over the past 15 years, this company has leapfrogged most market indices we’ve tracked, exhibiting superior growth prowess reflected in its revenue and profit after tax.
The compounded annual growth rate (CAGR) for its revenue and profit after tax have been at strong double digits over the past 15 years (sales 15 year CAGR: 25%, profit after tax 15 year CAGR: 29%).
As a result of a 12-14 percent decrease in raw materials needed for its products and a change in product mix, FY15’s gross margin expanded to 22.1 percent, and resulted in a 55 percent increase in net income for FY15 as well.
The strengthening USD has helped the company as it increases its presence in North America’s glove market with greater nitrile glove sales.
Company’s current glove production is split between nitrile and Latex, where the average selling prices charged for nitrile is some 15 percent higher than that of that of Latex.
Riding on the momentum of change in product mix towards that of a higher average selling price, higher efficiency in terms of utilisation rate, and the reduced costs in raw material prices (rubber), Top Glove has done it again and reported a set of stunning earnings for 1Q16, up 163 percent compared to that of 1Q15.
2. Good Tailwinds, Diverse Exposure, Good Efficiency
Global glove demand is set to continue moving in the north, and this industry is set for players who can produce at an output that matches standard, quality, and timing. Of course, established distribution inroads are crucial sense to any business as well.
Although Malaysia is still Top Glove’s major market, comparatively across its peers, Top Glove’s clientele base is much more diverse.
Top Glove has mentioned that it aims to increase its presence in the glove market of North America with larger nitrile glove sales, while also shared that it is making inroads into China, India and Russia markets.
The drive for automation has seen momentum gained. In fact, FY15’s million pieces gloves per worker per year (mpgpwpy) increased to 3.42 compared to that of 3.18 in FY14. The latest factory is already operating at 4.3 mpgpwpy.
The push to bring its total capacity to 52.4 billion gloves produced by February 2017 would help support FY16-FY17’s growth.
3. Strong Cash Position
Top Glove is currently sitting on a hefty cash war chest. As of 1Q16’s balance sheet figures, it currently has some RM865.2 million in cash and short term investments.
Top Glove’s gearing is also low at some 5.8 percent. Stress testing it with total debt against equity gets a figure of 28.5 percent, still below the 30 percent mark.
We think that for a company this size with its cash chest and healthy gearing levels, it is possible for Top Glove to actively take on further M&A activities should it choose to, in order for it to grow and expand even faster.
The sector Price to earnings ratio (PER) is currently pegged at 21 times, while Top Glove’s PER is at some 23.5 times, just slightly above the sector’s average.
TOPGLOV (7113) - 3 Reasons To Like Top Glove
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