News

In an announcement to Bursa Malaysia, Top Glove said it is buying a piece of freehold industrial land measuring approximately 1.5 acres located in HS(D) 293019, Lot No. PT 32307, Mukim of Bukit Raja, District of Petaling, for RM20.3m or RM313 per sq feet.

The land is located beside Top Glove’s new headquarter i.e. Top Glove Tower in Setia City, Shah Alam, Selangor.

The Sales and Purchase Agreement (“SPA”) for the proposed acquisition is expected to be signed by 17 April 2015.

Comments

We were not surprised by this land acquisition by Top Glove but are apprehensive because the location of the land appears to be unsuitable for its plant expansion. Hence, it appears that this piece of land is not targeted for production of rubber gloves, which is Top Glove’s core operating business.

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.

Nevertheless, Top Glove’s expansion plans are very much on track. Factory 29 came on-stream in Feb 2015, boosting the total number of production lines to 484 and increasing production capacity to 44.6b gloves per annum. Factory 29 also comes fitted with faster and technologicallyadvanced machinery, which means better efficiency and profitability. In the pipeline is the expansion of Factory 27 in Lukut, Port Dickson (to be completed by Dec 2015) and Factory 6 in Thailand (to be completed by July 2016), as well as the construction of a new facility, Factory 30 (to be completed by September 2016) which will respectively bring the number of production lines to 538 and capacity to 52.2b (+12%) gloves p.a. by Sept 2016.

Forecast

No change to our earnings forecasts.

Rating & Valuation

Maintain our MARKET PERFORM and TP of RM5.80 based on unchanged 17x FY16 EPS.

Risks to Our Call

Lower-than-expected sales volume.

Source: Kenanga Research - 21 Apr 2015