• Overview. Top Glove’s (TG) 2QFY19 PATMI increased to RM115.7m (+3.8% qoq, +9.3% yoy) mainly due to increase in overall glove sales volume (+2% qoq, +1% yoy). On qoq, TG sales volume of latex and surgical gloves improved by 11% and 18% qoq respectively. Aspion recorded a positive result, with their surgical glove sales increasing by 29% qoq. Together with overall lower operating expenses, TG’s PATMI margin improved slightly to 9.4% (+0.2 ppts).

• Key highlights. Increasing orders were observed during the quarter with current plant utilization rate at c.90%. We estimate utilisation rate to be around 90% in FY20 due to higher demand driven by the Covid- 19 pandemic. Plants F2B and F5A have recently started operations and will add 3.2bn pcs of capacity. The group overall capacity is expected to increase to 81.6bn pcs p.a. (+16%) by end 2020 (refer table 2).

• Against estimates: Inline. 1HFY20 PATMI of RM227.1m was in-line with our and consensus estimate at 49% and 48% respectively.

• Outlook. Glove demand recently has seen strong orders not just from China but also from Europe, US and other infected countries following the recent rapid spread of the virus worldwide. In view of this, TG sales order book has since doubled with continued strong near to mid-term outlook. Long-term demand remains on uptrend as the virus outbreak is set to generate greater global healthcare awareness especially in countries that previously have lower glove usage per capita. We have raised our earnings forecast higher for FY20/FY21 by 5%/3% to factor in the surge in demand. (table 3)

• Our call. Following earnings revision, we have derived a new TP of RM6.50 (from RM6.30) based on PER of 31x (1SD above 5-yrs historical forward mean) pegged on FY21 EPS. Maintain BUY.

Source: BIMB Securities Research - 20 Mar 2020