• Overview. Top Glove’s (TG) 3QFY21 net profit of RM2bn showed a strong +485% yoy performance but dropped by -29% qoq. The softer qoq performance was mainly due to decline in ASP (-16% qoq) and lower sales volume (-4% qoq) following a halt in shipments to the US from Malaysia, in compliance with requirements of the US CBP. Hence, profit margin dropped by 4.6 ppts qoq to 48.9%.

• Key highlights. TG’s ASP have fallen by 16% qoq due to adjustment inline with market pricing trend and short fall in higher US glove prices due to sales halt. Global demand remained resilient though order lead time have shorten to 90-120 days (vs previous quarter 170-240 days). To cater for long term demand growth, TG will expand through organic and inorganic expansion with targeted additional production capacity of more than 100bn pcs p.a. to a total of 205bn pcs p.a. by end-2024 (table 2).

• Against estimates: Below. 9MFY21 PATAMI of RM7.3bn was below our forecast at 65%. The deviation against our forecast was mainly due to faster than expected fall in ASP and temporary halt in US sales. We cut our FY21-23F earnings by 16-21% to account for lower ASP assumptions and margin.

• Higher DPS. Third interim DPS of 18 sen (total payout of 71% including special dividend) was declared in 3QFY21, bringing total declared for 9MFY21 at 59.7 sen (+406% from FY20 DPS of 11.8 sen).

• Outlook. Moving forward we believe ASP will see a gradual decline as glove buying urgency is expected to fade due to increasing percentage of global vaccinations and rising competition from existing and newcomers’ capacity which will mostly be up from 2H21 onwards. Company net cash stood at RM4.2bn or circa 53 sen net cash/share as at 3QFY21 will be used for capex estimated at RM2bn p.a. and dividend payout.

• Maintain BUY call. In tandem with earnings revision, we have derived a lower TP of RM6.10 (from RM7.40) based on unchanged PER 18x pegged to CY22f EPS of 34sen. We reiterate our BUY recommendation on TG as valuation remains attractive at current level trading at FY21f/FY22f PER of 4.4x/ 11.5x. Dividend yield is estimated at 15% for FY21f.

Source: BIMB Securities Research - 10 Jun 2021