Results

• Within Expectation: Reported FY16 profit of RM361m (+24% yoy), accounting for 102% and 96% of HLIB and consensus full year estimates, respectively.

Deviations

• None.

Dividends

• Declared final dividend of 8.5 sen/share bringing full year dividend to 14.5 sen/share (representing 50% of payout in line with our forecast).

Highlights

• YoY: 4QFY16 revenue increased marginally by 1.8% as sales volume was up by 4% amid stronger USD (+4%) but offset partly by lower ASP (-6%). However, PATAMI fell by 36% given the rising production cost, increasing pricing competition and passing through the USD benefit to customers.

• QoQ: Sales volume was flat but 4QFY16 profit improved by 5% mainly due to upward revision in ASP by 7% (led by latex powered free +8.3% and nitrile glove +7.5%) but offset partly by higher latex price and minimum wage hike.

• ASP has been bottomed out and remained stable from August to September which should ease investor concern on further pricing competition. However, the recovery of ASP will be in in a more gradual manner. We expect EBITDA margin to normalise to 15-16% level (as compared to >20% from 4QFY15 to 2QFY16).

• Currently, we have conservatively factored in RM4.06/US$ and RM4.00/US$ in our FY16 and FY17 assumptions even though ringgit has recently weakened to RM4.20/US$.

• Average Latex price had climbed up recently from RM4.2/kg to RM4.6/kg while average nitrile price remained stable at below $1/kg. We expect latex price to stay at this level as the oversupply situation remains due to substantial planting in 2008-2012 period.

• On capacity expansion plan, F27 Lukut Plant has been completed in Aug16 while F6 Plant in Thailand will be commissioned in Nov16. Total capacity is expected to increase by 14% in FY17 after inclusion of partially commissioned F30 factory.

Risks

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

Forecasts

• No change in forecasts.

Rating

HOLD , TP: RM4.91

• We still like TopGlove for its exposure in resilient export market

Valuation

• Maintain HOLD with an unchanged TP of RM4.91 based on an unchanged P/E multiple of 18x CY17 EPS.

Source: Hong Leong Investment Bank Research - 13 Oct 2016