Results

1QFY14 core net profit of RM50.3m accounted for 22.3% and 22.0% of HLIB and consensus full-year estimates respectively. However, this result is considered to be largely in line as more production lines to commence productions in the coming quarters supported by sustainable demands.

In 1QFY14, it registered revenue of RM574.0m (-1.8% yoy, +4.7% qoq), EBITDA of RM83.3m (-6.9% yoy, -5.1% qoq), and normalized PATAMI of RM50.3m (-12.5% yoy, +5.2% qoq).

Deviations

Largely in line.

Dividends

None (1QFY13: none).

Highlights

Flat yoy revenue growth as 10% improvement in sales volume was negated by lower ASP and mainly on declining raw material prices.

Volume was higher yoy mainly driven by nitrile gloves, which saw a 37% growth yoy. Top Glove expects demand from both developed and emerging markets to continue growing at a rate of 8% to 10% per annum.

Raw material prices persisted in their downward trend in 1QFY14 vs. 4QFY13, with natural latex price declining by 3.6% qoq to an average of RM5.30/kg and nitrile latex price by 4.4% qoq to an average of USD1.08/kg.

With the completion of Factory 25, Top Glove expects to bolster its nitrile glove quality and production capacity, in line with growing demand. Nitrile glove output is also set to increase with the expansion of Factory 27 in Lukut (Port Dickson).

The proposed delisting of its 80%-owned subsidiary, Medi- Flex is pending shareholders’ approval in the forthcoming EGM which has been fixed on 30th Dec 2013.

The company foresees a very challenging and competitive business environment, particularly with the electricity tariff hike of 16.85% beginning next year. It has appealed to the government to reduce the increase of 16% to 8%.

Risks

• Spike in latex prices.
• Weaker USD against the MYR.
• Delays in capacity expansion plans, causing a hold back in capturing oncoming glove demand.

Forecasts

Unchanged.

Rating

HOLD, TP: RM6.09

Positives - Gradual shift to nitrile gloves and its upstream diversification (to meet ~40% latex requirements) delivering long term benefit, mitigate volatility of NR latex prices.

Negatives - Will experience lower net profit margins when compared to peers due to low exposure in nitrile latex gloves and PF NR gloves. About 54% of output in low margin powdered NR glove.

Valuation

Reiterate HOLD call on the back of unchanged TP of RM6.09 based on unchanged 16.0x CY14 EPS.

Source: Hong Leong Investment Bank Research - 18 Dec 2013