Top Glove’s FY20 core PATAMI of RM1.95bn (+410% YoY) was above ours and consensus expectations. Declared final dividend of 8.5 sen per share. FY20 revenue grew +51% YoY due to higher sales volumes (+17%) that was driven by the Covid-19 pandemic that brought in stellar demand and ASPs paired with improved cost efficiency. We remain optimistic on FY21 due to continuous high expectation of global glove demand (FY21: +25%) and rising ASPs. Raise FY21- 22 forecasts by +82%/+68%. TP is increased from RM10.44 to RM13.00 (16x PE on FY21 EPS). Maintain BUY along with it as our top sector pick.

Above expectations. 4QFY20 revenue of RM3.11bn (+84.2% QoQ, +161.4% YoY) with core PATAMI of RM1.36b (+271.3% QoQ, +1,565% YoY) brought full year FY20 core PATAMI to RM1.95bn (+410.4% YoY). The result came in above ours and consensus expectations at 136% and 128% respectively. The upside deviation was due to higher-than-expected revenue contribution (ASP driven).

Dividend. Declared a final interim dividend of 8.5 sen p/share going on ex on the 17th Nov 2020, bringing FY20 dividend to 11.8 sen p/share (after bonus share) (FY19: 2.5 sen p/share, after bonus share).

QoQ. Revenue of RM3.11bn (+84.2%) was boosted mainly due to better sales volume (+5%) and improved ASPs (+78%). This was mainly contributed by Nitrile gloves (vol: +5%, ASP: +103%), Natural Rubber gloves (vol: +4%, ASP: +77%), and Vinyl gloves (vol: +90%, ASP: +64%). Surgical gloves volume declined (-15%) due to some line changes to examination gloves, but saw improvement in ASPs by +33%. EBITDA margin improved to 54.1% (from 28.2%) due to high utilisation rates that concurrently improved production cost efficiency. Nevertheless this was partly mitigated by increase raw material prices; NBR and NR prices (both +4%). Subsequently, core PATMI improved to RM1.36bn (+271.3%).

YoY. Revenue increased (+161.4%) thanks to growth in sales volume (+43%) and improved ASPs (+80%). This was backed by stronger demand due to Covid-19 pandemic that lifted all glove segments: Nitrile (vol: +43%, ASP: +114%), Natural Rubber (vol: +43%, ASP: +81%), Surgical (vol: +18%, ASP: +30%) and Vinyl (vol: +80%, ASP: +110%). EBITDA margin improved by 42.3 ppts (from 11.8%) on the back of greater efficiency from higher utilization (c.97% vs. 4QFY19: 80%-85%) as well as lower raw materials prices; NBR (-16%) and NR (-8%) prices. Overall core PATMI surged by +1,565%.

FY20. Revenue of RM7.24bn (+50.7%) showed a good leap on the back of improved sales volume (+17%) and ASP (+27%). The exceptional showing was driven by Covid-19 pandemic that brought in stellar demand which led to stronger contribution in Nitrile gloves (vol: +31%, ASP: +31%), Natural Rubber gloves (vol: +7%, ASP: +30%), and Surgical gloves (vol: +13%, ASP: +12%). Vinyl gloves volume declined (-13%) due to intense competition back in 1HFY20, as supply for vinyl increased. However it was mitigated with improvement in ASPs by +50% thanks to shortage of supply in 2HFY20. EBITDA margin improved by 21.4 ppts on the back of greater operational efficiencies alongside higher utilization rate (c.97% vs. FY19: 80%-85%); lower costs of direct labour, energy and production overheads. Raw material prices were fairly mixed; NBR prices decreased (-13.3%) while NR prices increased (+2.5%). All in core PATAMI came to RM1.95bn (+410.4%) with a marginally higher effective tax rate (FY20: 17% vs. FY19: 13%).

Source: Hong Leong Investment Bank Research - 18 Sept 2020