Top Glove Corporation Berhad - Broadly In Line With Our Expectation

Date: 27/09/2019

Source  :  PUBLIC BANK
Stock  :  TOPGLOV       Price Target  :  4.15      |      Price Call  :  SELL
        Last Price  :  4.41      |      Upside/Downside  :  -0.26 (5.90%)

Top Glove reported a weaker set of results, with its full year FY19 earnings falling 12.7% YoY to RM370.6m. The results were broadly in line with our forecast, but below consensus estimates at 90% of full year estimate. The weaker performance was due to intense competition in the latex glove segment, losses in its vinyl glove segment and also the higher-than-expected finance cost incurred. We maintain our forecast and our Underperform call, with an unchanged TP of RM4.15. Top Glove also declared a final dividend of 4sen per share, bringing full year cumulative dividend to 7.5sen per share, translating to a dividend payout of 52%.

  • Topline growth offset by margin compression. Top Glove’s FY19 full year revenue grew by 13.8% YoY to RM4.8bn, on the back of stronger sales (+10% YoY). The increase in sales was mainly driven by the nitrile (+30% YoY) and surgical glove (+46% YoY) segments. Despite stronger topline growth, EBITDA eased marginally by 0.9% YoY to RM694.9m while margin contracted to 14.5%, from 16.3% in 4QFY18. We attribute the weaker EBITDA to heightened competition in the latex and vinyl glove segments. On a side note, Aspion has contributed RM19m to the Group’s bottomline. The average utilization rate for Top Glove and Aspion currently stands at c.85% and 55% respectively.
  • Segmental information. Operations in China continued to record losses, bringing cumulative losses for FY19 to RM4.1m. The lackluster performance was a result of the ongoing oversupply condition of vinyl gloves in China. We note that Top Glove’s China counterparts are throwing down prices of vinyl gloves and the ASP currently has fallen to c.USD10 per thousand pieces, as opposed to the original level of c.USD13 per thousand pieces. Profit contribution from Thailand operations is still on a downtrend, reporting only a mere RM0.1m profit this quarter, compared to RM3.5m in 3QFY19, as it was weighed down by the competition in the latex glove segment as well as the volatility in latex prices as that Top Glove operates two latex concentration plant in Thailand.
  • Outlook. Top Glove’s current installed capacity stands at 63.9bn pcs pa, with 682 lines in total. F7A (+0.8bn pcs pa) and F32 2nd Phase (+1.2bn pcs pa) are expected to come on stream and start producing by 4QCY19. F7A, which is located in Thailand will be allocated to produce latex gloves, while F32 2nd Phase can produce both nitrile and latex gloves. Construction of vinyl glove plant in Vietnam is underway, which will allow Top Glove to take advantage of the lower labor and energy cost considering that factories can use coal-fired burners in Vietnam. The vinyl glove factory is expected to be ready by mid CY2020.

Source: PublicInvest Research - 27 Sept 2019

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