Period  4Q14/FY14

Actual vs. Expectations

 The FY14 PATAMI of RM180.1m (-8.4% y-o-y) came within expectations at 97%-98% of both our full-year forecast and that of the consensus.

Dividends  A single tier final DPS of 9.0 sen was recommended. This brings FY14 total dividend to 16 sen which is inline with our expectation. Going forward, Top Glove announced a maiden dividend policy of not less than 50% of PATAMI going forward which is in line with our FY15 DPS forecast.

Key Result Highlights QoQ, the 4Q14 revenue was higher by 1.1% at RM580m largely due to higher volume of sales (+3%). Sequentially, 4Q14 PBT fell 13.5% to RM47.7m despite its China operations recording a small profit of RM1.8m following three consecutive quarters of losses, indicating that the closure of one of its China plants starting in 1Q which was completed in early Jun 2014 is bearing fruits. PBT margin fell by 2ppts from to 8% from 10% in 3Q14 due to higher natural gas price, indicating that Top Glove could be facing difficulty in cost pass-through. However, 4Q14 PATAMI rose 8% to RM45.9m boosted by a lower effective tax rate due to recognition of deferred tax assets from GMP Medicare Sdn Bhd.

 YoY, both FY14 revenue and PBT eased 1.6% and 11.4% to RM2.28bn and RM214.7m, respectively. Although revenue fell on the back of lower average selling price from decreasing raw material prices, sales volume rose 3% excluding PVC gloves which had declined due to the consolidation of two PVC factories into one following the closure of one of its China plants.

 However, FY14 PATAMI fell 8.4% to RM180m due largely to losses from its China operations (vinyl division) amounting to RM9.8m and lower PBT margin by 1ppts due to hikes in electricity and natural gas tariffs and forex losses.

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. Growth going forward could come from an additional 6 nitrile glove production lines at Factory 27 in Lukut, Port Dickson which came on-stream in September 2014, while the installation of production lines at Factory 29 in Klang is to be completed and operational by January 2015, which will come fitted with faster, more efficient and technologically advanced glove production lines. This will boost the number of production lines from 464 to 484 and increase production capacity by 6%, from 42.0bn to 44.6bn pieces of gloves per annum.

Change to Forecasts No changes to our earnings forecasts.

Rating & Valuation Maintain our MARKET PERFORM rating and TP of RM4.92 based on unchanged 16x CY15 EPS.

Risks to Our Call  Lower-than-expected volume sales.

Source: Kenanga