Results Update

Topglove has recently released its results for QE31/5/2010, where its net profit increased by 53% y-o-y on the back of a 49%-increase in turnover. However, its net profit declined by 8.6% q-o-q despite a 9.0%-increase in turnover. The q-o-q decline in net profit was attributable to a 24%-increase in latex prices as well as a 3% weakening in USD. Topglove is optimistic that the drop in its bottom-line in QE31/5/2010 would be reversed in the next quarter as latex prices has eased off (by 7% as at 1/6/2010) and the USD has rebounded.


Table 1: Topglove's last 8 quarterly results


Chart 1: Topglove's 16 quarterly results


Chart 2: Topglove's 16 quarterly results

Valuation

Topglove (closed at RM12.92 last Friday) is now trading at a PER of 15 times (based on last 4 quarters' EPS of 86 sen). This multiple is reasonable if Topglove can maintain its earning growth going forward. Can it?

Technical Outlook

Topglove is still in an uptrend but it looks toppish. At this moment, the 10 & 20-week SMA lines are still above the 40-week SMA line. As such, Topglove is rated a HOLD.


Chart 3: Topglove's weekly chart as at June 18, 2010 (Source: Tradesignum)

Conclusion

The drop in Topglove's profit margin could be a sign of tougher times ahead for rubber glove makers. However, the stock is still rated a HOLD as the technical outlook is still positive, albeit a bit toppish.