The 3QFY23 results of Top Glove Corporation Berhad (Top Glove) exhibited a narrowed LATAMI of RM130.6mn compared to LATAMI of RM164.7mn recorded in the 2QFY23. This figure represents a decrease from the PATAMI of RM15.3mn reported in the 3QFY22. Consequently, the accumulated PATAMI for the 9MFY23 reached RM463.5mn, surpassing both our and consensus projections by 76.5% and 100.7% respectively. We believe the decommissioning of the production facility may alleviate the issue of oversupply within the industry and hence, leading to a consolidation of the market. Maintain SELL on Top Glove, with TP of RM0.74. (RM0.48 previously)

• Above expectations. 9MFY23 LATAMI of RM463.5mn was above our in-house and street expectation, making up 76.5% and 100.7% respectively given higher-than-expected ASPs despite slower in sales order.

• QoQ. Revenue tumbled 14.1% QoQ, no thanks to lower sales volume from the customers (-21% QoQ) despite increase in ASPs by 6% QoQ. Despite achieving partial success in increasing the ASPs, the group's efforts have only led to a decrease in utilization rate given heightened competition in the market. LBT however narrowed from RM145.9mn (2QFY23) to RM138.5mn during this quarter amidst downward movement on raw material prices and other operation costs particularly natural gas.

• YoY. Revenue deteriorated 65.7% YoY amid disappointing LBT margin which decline by 28.6ppts YoY. This was due to the heavily burdened by oversupply that negatively impacted the market. To encounter this issue, Top Glove has temporary halt production of 17 out of 49 factories as well as reducing production capacity by 5bn pieces of gloves - bringing 95bn pieces of total capacity for FY23.

• YTD. For full year FY23, revenue and core PATAMI slid by 69.5% YoY and 96% YoY respectively, no thanks to tough operating environment due to rising input costs and persistent supply and demand imbalance.

• Outlook. The management has expressed their intention to actively pursue strategies aimed at increasing ASPs, although the ultimate success of these will be subject to the prevailing market demand. Additionally, a notable reduction in operating costs is anticipated to contribute to an improvement in profit margins. Taking into account the current market conditions characterized by excessive supply and inventory levels, we anticipate an ongoing imbalance in the supplydemand dynamic until at least the end of CY 2023. However, the decommissioning of a production facility is likely to mitigate the issue of oversupply within the industry, leading to a consolidation of the market.

• Forecast. Following the result, we cut our FY23F loss assumption from RM606mn to RM592.5mn and increase FY24F by 33%.

• Maintain SELL, TP: RM0.74. Maintain a SELL call on Top Glove with higher TP of RM0.74 (RM0.48 previously). Our valuation is based on BV/share of RM0.70 and FY24F P/BV of 1.05 (30% discount).

Source: BIMB Securities Research - 19 Jun 2023