Top Glove is scheduled to release its FY13 results on 11 Oct. We do not foresee  any  major  surprises.  Going  forward,  we  expect  the group’s rising nitrile production capacity to perk up its earnings. Maintain BUY, with our FV nudged up to MYR7.08, based on its existing 17x FY14 P/E.  
 
- FY13 results likely to be in line. Top Glove is set to announce its full-year  FY13  results  on  11  Oct.  We  foresee  no  major  surprises,  as  we expect  the  easing  of  raw  material  prices  such  as  latex  (73%  of  Top Glove’s production mix still  comprises  natural  latex  gloves)  and  the strengthening of the USD to lift its margins.  

- Revising  earnings.  With  the  strengthening  of  the  greenback,  we  are revisiting  our  model  and  tweaking  our  currency  exchange  assumptions upwards to MYR3.20 (from MYR3.10) for FY13 and FY14. We also are incorporating the higher logistics costs arising from the recent hike in fuel prices.  We  are  now  forecasting  earnings  of  MYR205.2m  and MYR257.5m for FY13 and FY14, up 0.3% and 1.0% respectively.

- Expanding  into  nitrile. We  gather  from  management that Top Glove’s capacity  expansion  plans  are  well  on  track.  The  company  will  focus  on growing its nitrile glove production capacity, which would see its annual production  capacity  increasing  to  47.9bn  pieces  by  April  2014  (from 41.9bn  pieces).  This  will  be  bolstered  by  two  new  factories  (F25  and F29) now being constructed, as well as expansion of its existing factories (F27 and F23). We believe that these moves would potentially reinforce Top Glove’s leading market position and lift earnings moving forward.

- Maintain  BUY. We  continue  to  like  Top  Glove,  as  the  new  nitrile  glove production capacity coming online next year will boost its margins going forward. Maintain BUY, with its FV bumped up slightly to MYR7.08 (from MYR7.01),  based  on  an  unchanged  17x  FY14  P/E  (in  line  with  the average three-year historical average P/E of 17.1x).

Source: RHB