Top Glove’s 1QFY15’s  MYR48.7m  net  profit  was  broadly  in  line  at 26%/25%  of  our/consensus  full-year  estimates  respectively.  We maintain  our  BUY  call  and  MYR5.06  TP  (17.7%  upside)  based  on  17x FY15F  P/E.    Earnings  growth  of  6%  QoQ  was  driven  by  higher  sales volume.  Nevertheless,  lower  ASPs  for  the  quarter  resulted  in  softer revenue figures.  
 
Results  in  line.  Top Glove’s 1QFY15  (Aug)  earnings  were  in  line  with our and consensus estimates, making up 26% of our full-year forecast. Although  revenue  fell  2.2%  QoQ,  led  by  lower  ASPs  due  to  the  falling cost  of  raw  materials,  earnings  were  up  6.1  QoQ.  EBITDA  margin improved to 14.2% from the previous quarter’s 10.2%.  

Decreasing  cost  of  raw  materials.  Prices  of  natural  and  nitrile  latex, the  two  key  components  of  rubber  gloves  manufacturing,  have  fallen YoY.  Natural  latex  has  fallen  24.5%  to  an  average  of  MYR3.90  per  kg while nitrile latex has contracted 1% to an average of USD1.04 per kg. Nevertheless, as is the convention in the glove industry, savings gained from these were shared with customers.

Ramping  up  of  nitrile  capacity.  Top  Glove  is  on  track  with  its expansion blueprint, where 14 new lines are expected to be completed in Jan  2015.  This  will  introduce  an  additional  2bn  (or  20%)  nitrile  glove capacity. By Sep 2016, the company is expected to add 42 lines in total, bringing total capacity up to 49bn pieces (Nov 2014: 42.6bn).

Falling  MYR.  The  recent  weakness  of  the  MYR  against  the  USD  is expected to benefit Top Glove, as selling prices are quoted in USD while cost is denominated in MYR.

Maintain  BUY  and MYR5.06  TP.  The  recent  sell  down has  led  to  Top Glove  being  traded  at  attractive  valuations.  It  is  now  trading  at  14.4x FY15F  P/E.  The  company  has  solid  fundamentals, ie  a  robust  balance sheet,  healthy  cash  flow  and  decent  dividend  yields  of  3.5-3.7%.  We maintain our MYR5.06 TP based on 17x FY15F P/E, which is the mean of its historical trading band.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Top Glove Corp (Top Glove) is an investment holding company. The principal activities of its subsidiaries are  the manufacturing and sale of medical gloves

Recommendation Chart

Source: RHB