• Top Glove’s 3QFY18 PATAMI grew 51% yoy and 8% qoq to RM118m on higher sales volume and ASP as well as contribution from Aspion.

• Overall, 9MFY18 PATAMI grew 42% to RM332m and was in-line with ours and consensus full year forecast at 73%.

• An interim DPS of 7 sen was declared, implying a 27% payout.

• Its share price has performed strongly over the past year and we see most of the positives have been priced in. Downgrade to HOLD with and unchanged RM11.40 TP. Revisit at lower levels.

Strong performance supported by all-time high sales volume

The strong 3QFY18 performance was in tandem with higher revenue owing to higher ASP (+8% qoq, +3% yoy) and sales volume (+8% qoq, +37% yoy). The recently-acquired Aspion, a surgical glove-maker, aided the strong performance with its 2-month contribution in Apr and May. We also note that Top Glove also benefited from favourable natural rubber (-1% qoq, -38% yoy) costs and stable nitrile prices (+8% qoq, -14% yoy) based on Bloomberg data.

On track for another record year

Over the 9MFY18 period, PATAMI has risen by 42% on the back of 20% growth in revenue. This was due to robust sales from the Asian region (India, China and Vietnam grew by >100%) followed by Eastern Europe (+48%), the Middle East (+55%) and Latin America (+16%). Additionally, prices of natural rubber and nitrile has fallen by 21% and 5% respectively over the period. Management also utilised reinvestment allowance which lowered effective tax to 12% (9MFY17: 17.5%). Overall, 9MFY18 PATAMI was inline with ours and consensus estimates at 73%.

Outlook remain positive on organic and M&A growth

Global demand is expected to remain strong from greater hygiene and healthcare awareness. Moving forward, we expect earnings growth to be driven by its expansion plans (Table 2) and contribution from Aspion which commands higher margin. However, we note that short-term risks to earnings are prevalent arising from i) rising nitrile latex price coupled with strengthening dollar, ii) the natural gas tariff hike (average +0.5%), and iii) higher minimum wage. Typically, cost pass-through mechanism has a 2-month lag.

Downgrade to HOLD with TP remain at RM11.40

We retain our RM11.40 TP which is based on 26.5x PER (+2SD over its 3- year 12-month forward mean) over its FY19 EPS. However, following its recent strong share price run up (+42% YTD), we downgrade our call on the stock to HOLD. We remain positive on its good earnings prospect and sound fundamentals; revisit at lower levels

Source: BIMB Securities Research - 20 Jun 2018