Top Glove has been imposed with a 14 day EMCO on its workers’ dormitories from 17-30 Nov. We are slightly negative on the news, as this can be reasonably expected to disrupt production during the 2 week EMCO period, although noting that all its factories will still be running. The 2 affected workers dormitories make up 16% of its total factory workers. Separately, news flow on the vaccine development (Pfizer/BioNTech and Moderna) has been gaining traction. With the hype on vaccine discovery closing in, we lower our PE target from 16x to 14x (reflecting -1.5SD below 5Y mean, from -1SD previously), still tagged to FY21 EPS. Alongside with the earnings adjustments, TP decreases to RM10.95 (from RM13.00). With share price having declined c.25% since Oct 19, we nonetheless still think there is sufficient buffer to warrant our BUY rating.

NEWSBREAK

Defence Minister, Datuk Seri Ismail Sabri Yaakob announced an Enhanced Movement Control Order (EMCO) to be imposed on Top Glove worker dormitories in Meru, Klang from 17-30 Nov.

HLIB’s VIEW

Slight disruption. We understand that Top Glove’s factories will be running as usual despite the lesser workers during the EMCO on the on the 2 dormitories. Despite so, we reckon that some production disruption can be reasonably expected during the 14 day EMCO period. The 2 dormitories comprise c.2.5k workers, or 16% of Top Glove’s total factory workers. Top Glove is still in the midst of seeking further clarification with relevant authorities on the implementation of this EMCO.

Vaccine development. Last week, it was reported that a vaccine jointly developed by Pfizer and BioNTech was 90% effective in preventing Covid-19 in its ongoing Phase 3 trials. Separately yesterday, Moderna said preliminary Phase 3 trial data showed its vaccine is more than 94% effective in preventing Covid-19.

Forecast. We decrease our FY21 earnings by -3.8% to reflect in the temporary disruption from the EMCO.

Maintain BUY, TP: RM10.95. With the hype on vaccine discovery closing in, we lower our PE target from 16x to 14x (reflecting -1.5SD below 5Y mean, from -1SD previously), still tagged to FY21 EPS. Alongside with the earnings adjustments, TP decreases to RM10.95 (from RM13.00). With share price having declined c.25% since Oct 19, we nonetheless still think there is sufficient buffer to warrant our BUY rating.

Source: Hong Leong Investment Bank Research - 17 Nov 2020