The group recorded its highest ever quarterly revenue of RM938.1m (+19.4% yoy) on higher ASPs and strong sales volume (+17%) mainly due to higher global demand, as well as additional capacity from factory 30. Consequently, PATMI increased 43.8% yoy due to higher sales as well as lower effective tax rate (-4.8ppts). As a result, profit margin increased 1.9ppts to 11.2%
On qoq basis, both revenue and PATMI increased 4% and 11.5% respectively. The robust performance was attributed to the improvement in production efficiency, coupled with new capacity coming on-stream and strong demand growth. Additionally average natural latex price also dropped 10% qoq to RM5.00/kg.
Moving forward, in tandem with rising global demand for nitrile gloves, Top Glove plans to expand its nitrile glove production through additional capacity of 7.8bn pcs from factory 31 (operational May 2018) and factory 32 (operational December 2018). Additionally, the group will focus on enhancing its product quality and operational efficiency, as well as venture and tap into niche market which commands better margins. Current latex price had also stabilized at c.RM4.60/kg this week compared to its 5-year peak of RM8.18/kg in Jan 2017. The low raw material costs bodes well for Top Glove which will mitigate other cost pressure (i.e. higher labour costs, increase in gas tariff and chemical prices). On a positive note, glove producers are able to pass on cost increases to their customers.
We maintain our forecast at this juncture pending management meeting next week. Our current TP of RM6.50 is based on its average 3-years PER of 21x over FY18 EPS. We continue to like Top Glove for its dynamic expansion plans and continual efforts in enhancing operating efficiency through increased automation.
Source: BIMB Securities Research - 20 Dec 2017
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