Top Glove - Results Review

Date: 12/10/2018

Source  :  BIMB
Stock  :  TOPGLOV       Price Target  :  10.00      |      Price Call  :  HOLD
        Last Price  :  4.79      |      Upside/Downside  :  +5.21 (108.77%)

  • Top Glove’s 4QFY18 PATAMI of RM101.6m grew 7.6% yoy on higher sales volume (+27%) but dropped 13.6% qoq mostly due to higher effective tax rate.
  • Overall, FY18 PATAMI grew 32% to RM433.6m and was in-line with our and consensus full year forecast at 99% and 98% respectively.
  • Higher final single tier DPS proposed of 10sen, bringing FY18 total dividend to 17sen (FY17: 14.5sen), implying a 50% payout.
  • No adjustment made to our earnings. Maintain HOLD with TP unchanged at RM10.00.

Strong revenue supported by high sales volume

The strong 4QFY18 revenue performance of RM1,216.9m (+10.6% qoq, +34.8% yoy) was mainly due to higher sales volume (+6% qoq, +27% yoy) as well as additional capacity from Factory 31 (+3bn pcs or +5.2%) which commissioning in July. However, PATAMI was softer (+7.6% yoy, -13.6% qoq) due to higher effective tax rate as the tax incentives have being taken up mostly in 4QFY17.

Another record year

Over the FY18 period, PATAMI rose by 32% yoy on the back of 23.6% growth in revenue. This was due to higher sales volume (+26%) supported by strong global demand as well as additional capacity. Additionally, cost efficiency as well as lower natural rubber latex price (c.-22% yoy) aided in the increase in profit margin by 0.7ppts to 10.3%. Overall, FY18 PATAMI was in-line with our and consensus estimates at 99% and 98% respectively.

Higher dividend proposed

The group has proposed a final single tier DPS of 10sen, bringing FY18 total DPS to 17sen (FY17: 14.5sen), translating into yield of 1.6%.

Outlook remains positive

Global demand is expected to remain strong growing 8-10% p.a from greater hygiene and healthcare awareness. We expect near-term earnings outlook to remain positive supported by capacity expansion plans (+14.2% or up to 69.1bn pcs p.a by 2020), strong USD and lower raw material prices. Average latex prices were soft, i.e. declining by c.22.8% yoy and 10.2% qoq, which in turn benefits Top Glove as c.50% of its gloves production are natural rubber gloves.

Maintain HOLD with TP remain at RM10.00

We maintain our forecast with TP unchanged at RM10.00 based on 26x PER (+2SD over its 3-year 12-month forward mean) over its FY19 EPS. Our PE multiple is deemed fair given i) Top Glove’s strong global presence with c25% global market share, ii) growth in its inorganic expansion and iii) the company is making steady progress in the fast growing nitrile glove market.

Source: BIMB Securities Research - 12 Oct 2018

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