• Overview. Top Glove’s (TG) 1QFY20 PATMI increased by 50% qoq to RM111.4m due to strong growth in sales volume (+6% qoq), higher nitrile glove ASP (+2% qoq) and lower overall operating expenses. Average price of raw material fell qoq (NR: -11%; NBR: -1.8%). On yoy basis, PATMI increased slightly by 1.2% despite a dropped in revenue (-4% yoy), mainly due to lower effective tax rate of 10.9% (-10.4 ppts yoy).
• Key highlights. Total sales volume increased by 6% qoq and 0.2% yoy mainly driven from higher sales of nitrile glove (+12% qoq, +20% yoy). Sales mostly came from developed market, up 11.5% qoq (refer table 3). In addition, the group continued to see recovery in its China vinyl glove operations as well as positive earnings contribution from Aspion. Overall, TG’s PATMI margin improved to 9.2% (+3ppts qoq).
• Against estimates: Inline. 1QFY20 PATMI of RM111.4m was in-line with our and consensus estimate at 24% and 26% respectively.
• Outlook. TG’s long-term prospect remains promising on i) growing global demand supported by TG’s planned capacity expansion to 81.9bn p.a (c.+17%) by end-2020 (refer table 2), ii) expected higher ASP, iii) improved product quality as well as innovation, and iv) ongoing cost efficiency effort and automation.
• Our call. Our earnings forecast remains unchanged. Maintain HOLD call with TP of RM4.92 based on unchanged 27x PER pegged on FY20 EPS.

Source: BIMB Securities Research - 18 Dec 2019