Top Glove - Ending FY18 on a high

Date: 12/11/2018

Source  :  HLG
Stock  :  TOPGLOV       Price Target  :  9.92      |      Price Call  :  HOLD
        Last Price  :  4.75      |      Upside/Downside  :  +5.17 (108.84%)

Top Glove’s FY18 core PATAMI of RM447.9m (+38.0% YoY) was within ours and consensus expectations. Declared final dividend of 10sen/share (YTD: 17sen/share). Revenue grew to RM4.2bn (+23.6%) YoY due to higher sales volumes (+26%) and a utilization rate of c.90% in FY18 on the back of robust global demand. We maintain our HOLD rating and TP of RM9.92 as the results are in line.

Within Expectations: FY18 core PATAMI came in at RM447.9m (+38.0% YoY), accounting for 101.7% of ours and 101.0% of consensus estimates.

Dividend. Declared a final interim dividend of 10 sen/hare, bringing YTD dividend to 17 sen/share (FY17: 14.5 sen/share).

Bonus issue. Following Top Glove’s earlier announcement in April, the proposed 1:1 bonus issue of c.1.28bn shares will go ex on the 24th of October.

QoQ. Revenue grew +10.6% on the back of higher volumes (c. +6%) and ASP (+1%). EBITDA margin softened by 0.5 ppts to 15.4% due to higher nitrile prices (+13.9%) but partly offset by lower NR prices (-2.6%). Core PATAMI declined by 12.6% to RM111.4m on the back of a higher tax expense (+169%) on the back of higher provision for deferred tax.

YoY. Revenue grew to a record RM1.2bn (+34.8%) on the back higher volumes sold (+27%) on the back of an enlarged capacity, stronger global demand and higher average ASP (+12%). EBITDA margin expanded by 1.9 ppts YoY to 15.4% on the back of higher utilization rates and greater efficiencies in the manufacturing process. Consequently, core PATAMI grew 18.9%.

YTD. Revenue grew to RM4.2bn (+23.6%) due to higher sales volumes (+26%), higher utilization rates (c. 90% vs FY17’s c.80%) and higher ASP (c. +6%). EBITDA margin expanded by 2.1ppts aided by favourable raw material prices (NR:-21.7%) and efficiency gains, partially offset by higher energy prices. Consequently, core PATAMI grew to RM447.9m (+38.0%) despite a marginally higher effective tax rate (FY18: 16% vs. FY17: 14%).

No impairments. Top Glove has allocated goodwill of RM1.16bn for its acquisition of Aspion. The group has assessed the recoverable amount of Aspion based on value in use and has determined that there will be no impairment required for the goodwill arising from the acquisition contrary to expectations.

Forecast. Unchanged pending analyst briefing next week as the results were in line.

Maintain HOLD, TP: RM9.92. Our TP which is based on CY19 earnings pegged to a PE multiple to 25x (2SD above historical mean). The prospects of higher USD moving forward, coupled with capacity expansion amidst robust global demand will continue to drive earnings growth. Nonetheless, at these levels Top Glove is trading at 27.7x FY19 PE which is above 2SD above its 5 year mean. Thus we maintain our HOLD call.

Source: Hong Leong Investment Bank Research - 12 Nov 2018

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