Investment Highlights

• We maintain BUY on Top Glove with a higher fair value of RM20.06/share (vs. RM17.38 previously). Our valuation is based on a PE of 33x CY21F EPS. We raise our earnings forecast by 1.3% for FY20F, 13.6% for FY21F and 22.6% for FY22F. This is to reflect the updated expansion plans where capacity expansion is bigger by 3% in CY20, +10.3% in CY21 and +10.9% in CY22, compared to previous plans presented on 18 May 2020 (as shown in Exhibit 2).

• Top Glove’s 9MFY20 net profit of RM575mil (+98% YoY) accounted for 45% of our and 63% of consensus’ full-year earnings estimates. We believe 4QFY20F will prove to be an even better quarter for the group due to a full-blown impact of Covid-19 pandemic with significantly higher selling prices and sales volume. Hence, we think that the results are in line with our expectations but above consensus.

• Top Glove’s 3QFY20 revenue grew 37% QoQ (+42% YoY). This was on the back of higher sales volume and ASP, underpinned by Covid-19 pandemic (breakdown shown in Exhibit 3).

• Sales volume was higher by 25% QoQ (24% YoY) as utilisation rate soared to more than 95% from 85%. Sales volume in developed markets expanded 14% QoQ while in developing markets, it jumped by 34.5% QoQ. The strongest growth came from Asia ex Japan at 62.7% while the lowest growth was from North America at 4.6%.

• ASP rose 5% QoQ (+9% YoY) to roughly US$22–US$27 per 1,000 pieces. The group’s top line was further lifted by a 5% QoQ and YoY weakening of the MYR against the USD.

• The improved operational metrics resulted in a PBT of RM422mil in 3QFY20 with a 14ppt QoQ increase in PBT margin to 25% (+18ppt YoY). Top Glove also enjoyed lower raw material prices. Latex raw material price was lower by 1% QoQ (-4% YoY) while nitrile raw material price dropped by 10% QoQ (-14% YoY).

• Demand remains strong with a much longer lead time of around 400 days compared with the usual 40 days. Monthly sales orders shot up around 180%.

• 9MFY20 revenue grew 14% YoY to RM4,127mil as sales volume grew 9% while ASP edged up 3%. The USD strengthened by 2% YoY against the MYR in 9MFY20. Nitrile sales mix was also higher at 47% (42% in FY19)

• In the past 1 month, sales orders from various countries surged. Compared with Jan 2020, sales orders from China leapt 310%, Japan +84%, South Korea +159%, Taiwan +416%, USA +147% and Germany +572%.

Source: AmInvest Research - 12 Jun 2020