Investment Highlights

• We maintain HOLD on Top Glove with a higher fair value (FV) of RM3.77 (vs. RM3.66/share previously). Top Glove has announced that it is now allowed to sell its Malaysia-made gloves to the US. This is a positive development as it indicates that ESG concerns have been alleviated. We have accordingly upgraded our ESG rating to 3 stars from 2 stars for Top Glove.

• To resume selling gloves to US. We gather that the approval was granted to Top Glove Malaysia to sell its gloves in the US as the US Customs and Border (CBP) now believes that Top Glove’s disposable gloves are no longer produced or manufactured in any part with forced labour.

• We are positive on the news. The news could boost Top Glove’s share price as it may potentially improvement the ESG perception towards the company.

• Earnings estimates maintained. Pending the 4QFY21 results due on 17 Sep, we maintain our earnings estimates for FY21/FY22/FY23 at RM8.54bil/RM2.80bil/RM1.51bil. Our key assumptions for blended gloves ASP for FY21/FY22/FY23 are US$87.50/US$30.50/US$26.50.

• ESG score increased to 3 stars from 2 stars. We have raised our ESG score for “occupational safety + health” and “employee training + wellbeing” to 3 stars. The previous rating for these two categories is 2 stars.

• FV raised to RM3.77 from RM3.66. Our FV is based on unchanged 14x PE on CY22F FD EPS. We ascribe a higher FV after removing the previous 3% ESG-adjusted discount. For companies with a 3-star ESG rating, we do not assign a premium or discount to the stock PE valuation.

• Nevertheless, we maintain HOLD as the positive news from the ESG perspective is offset by the prospect of lower ASP. Due to higher incoming supply of gloves in the near term, we believe that ASP should decline in 3Q and 4Q of 2021. As a result, the positive impact from the removal of the CBP ban is offset by lower earnings for FY22 and FY23.

Source: AmInvest Research - 13 Sept 2021