Period

3Q15/9M15

Actual vs. Expectations

The 9M15 net profit of RM177m (+32% y-o-y) came in above expectations at 88% and 83% of our and the consensus full-year net profit forecasts, respectively. The positive variance from our forecast is due to the strongerthan- expected volume growth and better-than-expected margins.

Dividends

A first single tier interim DPS of 8 sen (3Q14 : 7 sen) was declared, which came in above our expectation. We have raised our DPS in FY15 and FY16 from 16 sen to 18 sen each. Key Result

Highlights

QoQ, the 3Q15 register double-digit revenue growth of 15.5% to RM661m largely due to higher sales volume (+10%) and boosted by the strengthening of US dollar against RM by 2.8%. However, QoQ, PBT rose 45% to RM100.6m mainly attributed to the lower raw material prices and stronger US Dollar, as well as due to better efficiency thanks to automation and reengineering of production lines which the Group had earlier embarked on. PBT margin rose 3%-pts to 15%. The stronger sales volume was driven by higher capacity utilisation as a result of ramp-up in demand for nitrile gloves, which accounted for 30% (3Q14 : 24%) of overall sales. Correspondingly, 3Q15 PATAMI rose 29% to RM72.3m.

YoY, the 9M15 revenue rose 6% as the higher sales volume (+6%) was more than offset by the lower ASPs. Note that nitrile and latex sales volumes rose 18% and 9%, respectively. However, QoQ, PBT rose by 37% to RM229m mainly attributed to the lower raw material prices and a stronger US Dollar, as well as its automation initiatives bearing fruits now. This brings 9M15 PATAMI to RM177m (+32% YoY).

Outlook

In the latest results briefing via a teleconference, management highlighted that EBITDA margin of 17-19% compared to our assumption of 17% is sustainable due to automation carried out on new and old lines, which are now bearing fruits and the absence of idle downtime of production lines (caused by automation).

Interestingly, 3Q15 volume growth of 10% QoQ is largely from the better productivity from the upgrading of old and existing lines and minimal growth from Factory 29 which full quarter impact will only be felt starting in 4Q15.

Top Glove’s expansion plans are very much on track. Factory 29 came on-stream sometime in May 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 (completed in Jan 2016) 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 Dec 2016) which will respectively bring the number of production lines to 540 and capacity to 52.4b (+15%) gloves p.a. by Dec 2016.

Change to Forecasts

We are raising our FY15E and FY16E net profits by 19-22% to take into account higher-than-expected volume growth and better-than-expected margin improvement.

Rating & Valuation

Correspondingly, our TP is upgraded from RM5.80 to RM7.05 based on unchanged 17x FY16E revised EPS. Upgrade from MARKET PERFORM to OUTPERFORM rating.

Risks to Our Call

Lower-than-expected volume sales.

Source: Kenanga Research - 18 Jun 2015