Summary
Top Glove’s (TOPG) 1QFY25 core net loss of RM21.5m narrowed from 4QFY24’s core net loss from RM38.4m missed ours and market’s expectations of core net profit at RM29.5m and RM146.4m respectively, due to higher-than-expected operating expenses and weaker-than-expected ASP improvements.
Factoring the higher-than-expected operating expenses and higher ASP as guided by in their analyst briefing, we adjusted our FY25/FY26 CNP forecast lower by -37.1%/-33.8% to RM29.6m/RM63.0m.
Downgrade to HOLD recommendation with a lower target price of RM1.25 (from RM1.26), based on 1.7x P/B multiple pegged to FY26F BVPS of 0.73.
Results below expectations. Top Glove Corporation Bhd's (TOPG) 1QFY25 results came in below expectations with core net loss at RM21.5m, compared with our full-year forecast of RM29.5m core net profit and the market's expectations of RM146.4m.
QoQ. Excluding extraordinary items such as RM16.1m reversal of inventories written down, RM9.1m unrealised foreign exchange gain, RM1.8m disposal gain in PPE and money market fund, TOPG's reported a narrower core net loss of RM21.5m in 1QFY25 from a core loss of RM38.4m in the preceding quarter. This was due to higher revenue (+6.1% qoq) from increased sales volume. Blended ASP declined by 2% qoq to USD 19.3/1,000 pcs in the September quarter, but the revised ASP for the December quarter is ~USD20-21/1,000 pcs. The effects of these price adjustments came in only towards the end of 1QFY25, with the full impact expected to be reflected in 2QFY25.
YoY. Core net loss narrowed from RM38.4m in 1QFY25, primarily due to better sales volume. Revenue for the quarter climbed 79.5% yoy, lifted by higher sales volume.
Outlook. Glove industry sees multiple positive opportunities: (i) continual stock replenishment across all regions, (ii) Upcoming US tariffs impose towards China glovemakers offer an opportunity for Malaysian players capitalise onto sales to US, (iii) Stronger glove demand offers glovemakers better pricing power and margin improvement opportunities.
Things to note in CY25. (i) Early orders for Malaysian glove manufacturers, expected between January and early March CY25, are likely tepid as US clients have already stocked up their nitrile gloves inventories from China prior to tariffs imposition. Prospects of improve sales to US are anticipated to start in late March CY25. (ii) TOPG plans to reopen closed factories to increase production capacity by 10bn pcs by the end of FY25, this will bring total running capacity to 70bn pcs. (iii) Raw material prices remained mixed qoq: (a) average natural latex concentrate prices increased by 4% qoq to RM6.88/kg, (b) average nitrile latex prices were down 3% qoq to USD0.94/kg. (iv) The Group intends to fully redeem the Perpetual Sukuk in Feb 2025, utilising RM380m in cash, and will issue an RM800m senior Sukuk.
TOPG’s geographical position strategy. (i) Own some land bank in Vietnam. (ii) Thailand's factories are relatively cheaper than Malaysia's, and capex is RM150m to set up a factory. (iii) TOPG has sufficient cash reserves to allocate production to other countries with lower personnel costs. (i.e., Phuket's workforce expense is higher than Sadao's).
Earnings Revision. We made some housekeeping adjustments to factor in the audited numbers from the FY24 annual report. We also factor in the higher-than-expected operating expenses and higher ASP as guided by TOPG in their analyst briefing. Following these changes, we adjusted our FY25/FY26 earnings forecast lower by -37.1%/-33.8% to RM29.6m/RM63.0m.
Valuation. Downgrade to HOLD recommendation on TOPG with a lower target price of RM1.25 (from RM1.26) by pegging 1.7x BV multiple to FY26F BVPS of 0.73 and 0% ESG factored premium/discount based on three-star ESG rating. The recent surge in share price has priced in the positive catalyst. This TP does not include the dilution of bonus warrants, but we have included the TP adjusted for the scenario in our table below.
Risk. Volatility in raw material prices and currency exchange rates will impact ASPs and margins.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.390206 | 4.425718 |
| EUR | 5.008717 | 5.015095 |
| CNY | 0.603029 | 0.603828 |
| HKD | 0.565660 | 0.569770 |
| SGD | 3.345779 | 3.370205 |