CEO Morning Brief

Top Glove Snaps Three-day Winning Streak, Slips 3.8% in Active Trade

Publish date: Mon, 20 Mar 2023, 08:39 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (March 20): Top Glove Corp Bhd topped the active traded list for the third straight day on Monday (March 20), after posting its third quarterly loss in a row last Thursday.

However, the counter fell as much as 3.5 sen or 3.82% to 88 sen in Monday morning trade, snapping its three-day winning streak, after buying interest pushed its share price up by more than 33% in the last three trading days.

As at 10.30am, the stock had pared some of its losses, as it traded at 89.5 sen, two sen or 2.19% lower than its closing price of 91.5 sen last Friday.

Trading volume stood at 49.88 million shares, placing it on Bursa Malaysia’s most active list.

Analysts have widely downgraded their earnings forecasts for Top Glove, after the group posted a cumulative net loss of RM332 million for the first half ended Feb 28, 2023 (1HFY2023).

After the second-quarter result announcement, the market consensus for Top Glove's annual net loss is now estimated at RM435 million for FY2023 — compared with an annual net loss of RM303 million prior to the release of the latest results.

Hong Leong Investment Bank (HLIB) Research said although raising average selling prices (ASPs) may relieve some margin pressure, the research outfit does not expect this to bring Top Glove back to profitability soon, as the price adjustment is still not sufficient to fully account for the cost increases.

As such, HLIB estimated the group to post a wider annual net loss of RM409.2 million for FY2023, from a projected RM274.2 million previously.

HLIB also expects Top Glove to continue bleeding in FY2024, with an annual net loss of RM66.3 million, against an estimated net profit of RM74.4 million previously. For FY2025, HLIB expects the group to deliver a smaller annual net profit of RM174.3 million, against an estimated net profit of RM182 million previously.

Similarly, MIDF Research said it remains cautious about Top Glove’s outlook, mainly due to limited room to pass on the increased costs via price adjustments, as customers can easily switch to other glove makers that offer competitive prices.

MIDF lowered its FY2023 profit forecast for Top Glove to a net loss of RM503.6 million, from its previous estimate of a net profit of RM55.7 million.

“We also lowered our earnings forecasts for FY2024 by 46% and FY2025 by 3%. This is after accounting for higher production cost per unit due to poor utilisation and rising electricity tariffs, which more than offset the ASP adjustment,” said MIDF.

Both HLIB and MIDF have maintained their "sell" recommendations on the stock.

Of the 22 analysts who track Top Glove, 16 of them had "sell" recommendations, four had "hold" calls, and two had "buy" calls, with a 12-month average target price (TP) of 67 sen. HSBC, which advises investors to buy in Top Glove shares, had the highest TP of RM1.05, while both JPMorgan and TA Securities Research had the lowest TP of 45 sen, with "sell" calls on the stock.

Source: TheEdge - 20 Mar 2023

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