Period  1Q15

Actual vs. Expectations The 1Q15 net profit of RM48.7m (-3.2% y-o-y; +6% qo-q) came in within expectations at 25%-26% of both our and the consensus full year net profit forecasts.

Dividends  No dividend was proposed in this quarter.

Key Result Highlights YoY, the 1Q15 revenue was marginally lower by (1.1%) at RM567m as lower average selling price (ASP) (-5%) negated higher volume sales (+4%). 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). PBT margin fell by 1ppts from to 10% (from 11%) due to higher natural gas price, indicating that Top Glove could be facing difficulties in cost pass-through. This brought 1Q15 PBT lower by 4.5% to RM59.1m.

 QoQ, the 1Q15 revenue fell 2%; again as lower ASPs (-4%) offset higher volumes sales (+1%). However, QoQ PBT rose 23.8% to RM59m; mainly due to lower raw material prices; a stronger US Dollar; as well as the concerted quality enhancement initiatives which the Group had earlier embarked on. YTD raw material prices continued to trend down (versus prices in 4QFY14) as the natural latex price fell by 12.1% to an average of RM3.90/kg while the nitrile latex price decreased by 4.6% to an average of USD1.04/kg in 1QFY2015.

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.

 Forward growth 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