• Overview. Top Glove’s (TG) 2QFY21 reported another record profit quarter of RM2.9bn (+2380% yoy) mainly due to increase in sales volume (+19% yoy) and higher ASP. On qoq basis, PATAMI improved by 22% mainly contributed by higher ASP, mitigating a decline in sales volume (- 8% qoq) due to Covid-19 temporary factory shutdown. Overall, profit margin improved to 53.5% (+3.9 ppts qoq, +44.1 ppts yoy) on better production efficiency and economies of scale.

• Key highlights. Demand remained strong despite shorter delivery time and TG’s 2HFY21 ASP expected to be higher than 1HFY21. On its expansion strategy, TG has embarked on a RM10bn capex over the next 5 years and targeted additional production capacity of more than 100bn pcs p.a. giving a total of 205bn pcs p.a. by end-2024 (table 2).

• Against estimates: Above. 1HFY21 PATAMI was above our forecast at 61%. We believe the higher-than-expected earnings was due to our conservative assumption on potential ASP hike and margin. We raised our FY21/22F EPS estimate by 31%/35% respectively, as we adjusted higher our ASP assumption.

• Higher DPS. Second interim DPS of 25.2 sen (total payout of 70% including special dividend) was declared in 2QFY21, bringing total declared for 1HFY21 at 41.7 sen (+253% from FY20 DPS of 11.8 sen). We estimate total FY21 DPS of 93.8 sen, which translates into DY of 18.1%.

• Outlook. TG expects to register FY21 supernormal earnings on the back of higher demand and ASPs. Moving forward, the roll out of vaccines and rising competition could possibly see urgent demand being stifled, hence we are taking a more prudent approach - expecting ASPs hike to peak in 1H2021 and gradually decline thereafter.

• Maintain BUY call. Despite the EPS rise, our TP is lowered to RM7.40 (from RM8.50), implying lower PER of 18x (a 20% discount and inline with -0.5SD 5 yrs pre-covid19 historical forward mean) pegged on rollover to CY22 EPS. Lower PER is justified on the concerns of i) risk of a down cycle in the glove sector from successful rollouts of Covid-19 vaccines globally, ii) ongoing ESG issues and iii) unresolved CBP ban. Maintain BUY. Company net cash stood at RM4bn or 51 sen net cash/share as at 2QFY21.

Source: BIMB Securities Research - 10 Mar 2021