Highlights

Top Glove Corporation Berhad - Broadly In Line

Date: 18/12/2018

Source  :  PUBLIC BANK
Stock  :  TOPGLOV       Price Target  :  5.70      |      Price Call  :  HOLD
        Last Price  :  4.47      |      Upside/Downside  :  +1.23 (27.52%)
 


Top Glove’s 1QFY19 net profit of RM110.1m came in within expectations, making up 21% of both our and consensus full-year estimates. Despite a strong 1QFY19 revenue growth of 34.5% YoY, net profit only rose 4.4% YoY. Net profit margin contracted by 2.5 ppts to only 8.7% in 1QFY19, mainly due to i) additional provision for tax expenses in the quarter, ii) higher interest cost from the funding for M&As, iii) loss recorded by Aspion, and iv) lower contribution from the Group’s vinyl glove operation in China (-39.1% YoY) due to supply normalisation. We tweak our earnings forecasts by 1-2% after inputting FY18 audited figures. Maintain Neutral with a revised TP of RM5.70.

  • 1QFY19 revenue grew 34.5% YoY to RM1,262.0m in 1QFY19 due to higher sales volume growth (+19% YoY) and ASP (+14% YoY). That said, a smaller growth in net profit was recorded (+4.4% YoY) due to a contraction in 1QFY19 net profit margin as a result of i) higher tax expenses due to a deferred tax liabilities provision of RM5.7m in the quarter (as compared to previo us year where deferred tax liabilities were only provided for in 4Q), ii) higher interest cost from the funding for M&As, iii) loss recorded by Aspion, and iv) lower contribution from the Group’s vinyl glove operation in China (-39.1% YoY) due to supply normalisation. For the additional provision for tax expenses booked in this quarter, we understand that it was the Group’s intention to provide for over four quarters in order to avoid sudden spike in provision in 4Q. Noted that the Group was not spared from the normalisation of China vinyl glove supply disruption, recording a flattish sales volume growth of 0.6% QoQ.
  • Raw material prices were mixed in 1QFY19. Average natural rubber latex prices dropped 24% YoY to RM3.78/kg, while average nitrile prices rose 2.7% YoY to USD1.26/kg.
  • Expansion updates. The upcoming expansion plan for F32 (3.4bn pcs), F33 (1.2bn pcs), F5A (2.0bn pcs), F40 (3.0bn pcs), F8A (3.2bn pcs) and F42 (2.0bn pcs) will boost the Group’s total production capacity by 24.5% or 14.8bn pcs of gloves p.a., and brings the Group’s total production capacity to 75.3bn pcs of gloves p.a. by December 2020.
  • Aspion was a drag in 1QFY19. Aspion contributed less than 10% to the Group’s revenue, and recorded a loss of c.RM3m in 1QFY19, mainly due to the impact from the transition such as higher production line downtime for modifications and upgrades to ensure cost efficiency and quality improvement. We expect Aspion’s performance to turnaround in 2HFY19 after the short-term transition phase. Apart from this, the Group targets to issue the proposed convertible bond of up to USD300m by end-January 2019 to repay its existing bank borrowings which should result in lower interest cost.

Source: PublicInvest Research - 18 Dec 2018

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