Period  1Q14

Actual vs.Expectations The 1Q14 net profit of RM50.3m (-13% y-o-y; +5% qo-q) came in within expectations at 22% of both our and the consensus full-year net profit forecasts.

Dividends  No dividend was declared.

Key Result Highlights YoY, the 1Q14 revenue was marginally lower by 2% at RM574m despite higher volume sales (+10%) which was negated by a lower average selling price (ASP). The stronger volume sales were driven by higher capacity utilisation as a result of ramp-up in demand for nitrile gloves, which accounted for 25% of overall sales. In addition, volume growth was also attributable to the continuous demand from developed and emerging markets, which are forecasted to continue growing at a rate of 8% to 10%. The PBT margin fell 1% ppts to 11% from 12% in 1Q14 due to the absence of the fair value gain on foreign exchange contracts of RM15.2m recognised in 1Q13. This brought the final net profit to RM50.3m (-13% YoY).

 QoQ, the 1Q14 revenue rose 5% as the higher volumes sales (+3%) more than offset the lower ASPs. However, 1Q14 pre-tax profit fell 3% to RM61.8m due largely to the unfavourable contribution from subsidiaries in China arising from the challenging operating environment in the vinyl glove segment. The vinyl glove division recorded an EBIT loss of RM5.2m compared to a profit of RM0.8m in 4Q13.

Outlook  Looking ahead, Top Glove is expected to face difficulty maintaining decent ASPs to defend its market share due to its product mix, which is skewed towards the challenging latex-based gloves market. Its growth prospect going forward is expected to come from its capacity expansion by additional 2.2b pieces of gloves, or 5% growth to a total of 46b over in FY14, largely for nitrile gloves.

Change to Forecasts No changes to our forecasts.

Valuation  Our MARKET PERFORM rating is maintained. We are also maintaining our target price of RM6.10 based on 16x CY14E EPS.

Risks to our Call Lower than expected volume sales.

Source: Kenanga