An official blog in I3investor to publish research reports provided by RHB Research team.
All materials published here are prepared by RHB Investment Bank Bhd. For latest offers on RHB Invest trading products and news, please refer to: http://www.rhbinvest.com
RHB Investment Bank Bhd Level 3A, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia
Maintain NEUTRAL, with new DCF-derived MYR0.80 TP from MY0.84, 6% upside. Top Glove Corp’s core loss narrowed QoQ to MYR86.3m in 4QFY23 (Aug) bringing the FY23 number in line with our and Street expectations. Notwithstanding the challenges ahead, management guided that it will strive to improve operating efficiency while remaining committed to uphold ESG practices following its inclusion in the Dow Jones Sustainability Index for five consecutive years. Our TP incorporates a 2% ESG premium.
Results overview. 4QFY23 core loss narrowed QoQ to MYR86.3m bringing its FY23 core loss to MYR509m (after adjusting for a MYR388.5m asset impairment arising from a decommissioning exercise) in line with our and consensus estimates. The sequential improvement in core loss was attributed to cost optimisation efforts as EBITDA (after adjusted for a one-off item) began to turn positive this quarter. On the flip side, ASP fell by 0.5% QoQ to USD20/thousand pieces, whereas volume sold declined 9.5% QoQ given customers still refuse to commit to bulk orders as the demand-supply dynamics remain imbalance.
Key operating metrics. The sequential lower ASP was attributed by a reflection of reduced raw material cost as TOPG translated cost savings to customers. That said management is of the view that ASP could potentially increase in 1QFY24 to reflect higher key raw material prices (latex and acrylonitrile prices were 3-5% higher in September vs August). Nevertheless, the company will still need to assess price sensitivity of its customers before making any price adjustment. Gas tariff is expected to decline by a further 5% from -11% (tariff review in July) on the back of softer natural gas prices.
Outlook. Moving forward, we expect with the plant de-commissioning exercise to offer some respite to TOPG given the obsolete plants are less manpower and energy efficient. As demand continues to be choppy in the near term, we now expect meaningful recovery to only happen by 2H24, as the inventory destocking pace comes in slower than expected. We believe key concerns among investors continue to be underpinned by the consistency of clients’ orders, price competition with Chinese peers as well as any punitive measures arising from a spike in minimum wages.
Earnings revision and valuation. We lower our FY24F-25F core loss by 4% to 2%, taking into consideration the challenges in raising ASPs as customers continue to be price sensitive. Our DCF-derived TP is lowered to MYR0.80 after we incorporate a higher beta (1.4 from 1.1) in view of the heighten systematic risk within the gloves sector.
Key risks. Higher/lower than expected ASPs, deferment/acceleration on capacity expansion plans, higher/lower-than-expected raw material prices, stronger/weaker-than-expected USD.
Be the first to like this. Showing 0 of 0 comments
Post a Comment
People who like this
Featured Posts
MQ Trader
Introducing MY's First IPO Fund for Sophisticated Investors!
MQ Chat
New Update. Discover investment communities that resonate with your ideas
MQ Trader
M & A Value Partners IPO Equity Fund has been launched - Targeted 13% Return p.a
Latest Videos
0:17
New IPO: The onshore and offshore support services provider for the O&G industry, Steel Hawk Bhd aims to list on the Ace Market!
MQ Trader 2909 views | 2 d ago
0:17
New IPO: The largest mini-market player and a leading groceries retailer in Malaysia, 99 Speed Mart Retail Holdings Bhd aims to list on the Main Market!
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....