Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: AMMB

KUALA LUMPUR: AmResearch maintains HOLD on Top Glove Corp Bhd, but with lower fair value of RM5.40/share based on a target PE of 13x CY11F earnings.

It said on Thursday, Oct 7 that notwithstanding FY10 net profit, which met its expectations, it'' maintained its long-standing negative stance in view of increased earnings downside risk due to overcapacity amid strong headwinds in high latex cost and a weak US dollar: ringgit exchange rate.

'We caution that earnings have yet to bottom out. As expected, Top Glove reported a sequentially weaker net profit of RM37mil for 4Q. We understand Top Glove would be deferring capacity expansion of Factory 23 (F23) by a possible five to six months to November 2011,' it said.

While the deferment may not impact AmResearch's earnings forecast significantly, it underlies its view of an overcapacity situation within the industry.