Results

• FY08/15 revenue of RM2.5bn (+10.3% yoy) was translated into adjusted PATAMI of RM290.2m (+50.9% yoy).

• Revenue came in within our expectation, however, adjusted PATAMI turned out above expectations, accounting for 110.2% and 106.7% of HLIB and consensus full year estimates, respectively.

Deviations

• Improved efficiency and margins as well as stronger than expected USD against MYR.

Dividends

• Declared a single tier interim dividend of 12 sen per bringing total DPS declared to 20 sen in FY15 (FY14: 16 sen).

Highlights

• FY15 sales volume increased by +8%; mainly improvement coming from its nitrile segment (+27% yoy). Sequentially, sales volume grew by +7% in 4Q15.

• We understand that ASP for FY15 has dropped by -7% yoy. Similarly for 4Q15, ASP has decreased by -5% qoq and - 11% yoy.

• EBITDA margin for FY15 improved to 17.8% from 11.7% in previous year, thanks to more efficient production lines, stronger USD and soft raw material environment. To note, average latex price for FY15 has dropped by -17% yoy while nitrile latex reduced by 2.8% yoy.

• Utilization rate during the quarter remain high at 80% and we were guided that full year utilization rate improved slightly to 76% as compared to 75% previously.

• We noticed that expansion plans have been delayed. Factory 27, Factory 6 and Factory 30 which was previously planned to be completed in January, July and December 2016 respectively has now been postponed to February and August 2016 as well as February 2017.

• Separately, Top Glove also proposed to undertake a bonus issue up to 630m new shares on the basis of one bonus share for every existing share. Our TP ex-date will be RM4.75.

Risks

• Further reduction in ASP amid steep competition.
• Surge in nitrile and latex prices.
• Weaker USD against MYR.

Forecasts

• We made changes in our forecasts as we factor in delay in expansion plans; higher utilisation rate; as well as we lift our average USD assumption. As a result, EPS for FY16 and FY17 lifted by 10-12%.

Rating

BUY , TP: RM9.49 

Positives

• Gradual shi ft to nitrile gloves, Chi na’s operations turned around, cost reduction through product line automation and SAP ERP system.

Negatives

• Will experience lower net profit margins when compared to peers due to low exposure in nitrile latex gloves and PF NR gloves.

Valuation

• We lifted our TP from RM6.62 to RM9.49 to reflect changes to our forecasts as well as changing of PE multiple from 15x (3-year historical average) to 20x CY16 EPS based on +2SD above its 3-year historical average P/E (similar to Kossan). This is also in-line with FY16 PE of Hartalega and Kossan.

Source: Hong Leong Investment Bank Research - 16 Oct 2015