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



MIDF Research has downgraded Top Glove Corporation Bhd to "neutral" from a "buy", after it revised downward the company's earnings forecast for FY11 by 11 per cent.

Its also cut Top Glove's target price to RM5.14 from RM7.10 previously.

"This is to factor in the risks due to glove demand normalisation, excess production capacity and declining cost-passing power.

"Note that our target price excludes the net cash per share of 49 sen or any impact on earnings due to any potential acquisition," the research house noted.

Given normalised glove demand and excess glove production capacity, MIDF said it expect the company's cost-passing ability and hence earnings margin, to continue to be under pressure moving forward.

Its margin will also be dragged down by a persistently high latex price and weaker US dollar.

"At the same time, Top Glove's management has indicated that consolidation might also take place among industry players.

"From a positive angle, we believe this could be the opportunity for Top Glove to utilise its huge net cash pile of RM300 million," it added.

Meanwhile, OSK Research said it its maintaining a "neutral" review on Top Glove with its target price unchanged at RM6.06 as its expects the company's 1QFY11 to not be very different from the 4QFY10 performance.

"This is unless, there is significant improvement in two factors over October and November. These are, a lower latex price and the strengthening of the US dollar against the ringgit.

"In our view, we are neutral on the 1QFY11 quarter outlook and we think the latex price and exchange rate will continue to be unfavorable. But this would be offset by the stocking up activities by its customers," it added.

Top Glove yesterday reported a net profit of RM45.06 million in the fourth quarter ended Aug 31, 2010, down 20.6 per cent from RM56.81 million a year ago.

Revenue, however was 27.5 per higher at RM541.38 million from RM424.51 million previously. -- Bernama