Top Glove Corporation Berhad - Emerging from the storms
Thu, 20-Jun-2024 08:42 am
by Chealsea Chew • Apex Research

Counter

TOPGLOV (7113)

Target Price (RM)

1.25

Recommendation

Hold

  • Results review. Top Glove's 3QFY24 core net loss narrowed to -RM16.0m, attributed to stronger sales volume growth driven by better glove demand as customers replenished inventories after clearing excess stocks and one-off disposal of land amounting to RM54.3m. Despite challenges from rising raw material costs, better economics of scale arising from improved sales volume mitigated the impact.

  • Below expectations. 9MFY24 core net loss narrowed to -RM112.6m came below our expectations of our core net loss forecast of -RM57.2m as well as consensus forecast of -RM144.04m. Nevertheless, we gathered the Group recorded their first positive EBITDA since 4QFY23, due to higher utilisation rate from higher demand.

  • Operations Highlights. Top Glove recorded 13% qoq increase in sales volume. Some shipments were postponed to the following quarter on port congestion; otherwise, sales volume would have increased 18% qoq. ASPs rose 3% qoq, despite substantially higher raw material costs as stronger demand enables the adoption of cost-pass-through mechanism. The Group resumed operations at temporarily shut down plants and those acquired during the pandemic which will produce 3.0bn pieces of gloves/month to meet higher demand.

  • Industry Highlights. After raw material prices marched, we gathered that price of nitrile raw material is expected to moderate from June to September 2024 (currently at USD 0.94/kg). Also, natural rubber latex raw material prices are projected to peak in April 2024 (currently at USD 1.73/kg) and are expected to soften by 6% in June. The natural gas tariff expected to decline by 3% in July 2024.

  • Outlook. Top Glove expects a surge in glove orders driven by stock replenishment, more Chinese manufacturers being added to the FDA import alert (13 out of 14 cases), and the US government’s plan to raise tariffs to 25% in 2026 (currently 7.5%). This has prompted customers to shift orders to Malaysia before the tariff increase takes effect. The Group plans to raise ASPs due to industry-wide higher raw material costs. Additionally, the narrowing pricing gap between Malaysian and Chinese manufacturers offers more outsourcing options to customers.

  • Valuation. Tweak our GP margin from 16.5% to 16.0% for FY24F, due to higher input costs. Consequently, we maintain our HOLD recommendation on TOPGLOV with a target price of RM1.25 by assigning 1.7x BV to FY25F. We adopt the P/B valuation method as a better measure to reflect in the Group’s fundamentals.

  • Risk. Volatility in raw material prices and currency exchange rates will impact ASPs and margins.
Read more details in:

Disclaimer

The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.

Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.186344 4.224837
EUR 4.692802 4.707788
CNY 0.594564 0.595974
HKD 0.537155 0.542118
SGD 3.243708 3.273864