Review

• Excluding a one-off impairment on goodwill (RM137.6mn) and PPE (RM251.0mn) mainly due to the operational rationalisation exercise, TOPG’s FY23 core net loss of RM538.1mn was within our and consensus full-year loss expectations at 99.6% and 104.8%, respectively.

• 4QFY23 revenue decreased 10.3% QoQ to RM475.9mn due to the lower sales volume of 9.5% and weaker ASP of circa-0.5%. Despite lower revenue, 4QFY23 core net loss decreased to RM74.6mn from RM130.6mn losses in the preceding quarter. The improvement was driven by the Top Glove Turnaround Plan, which includes streamlining of its production facilities involving temporarily ceasing of operations at some of its factories. In addition, raw material prices such as NR and NBR latex decreased by 8% and 22% QoQ respectively while natural gas tariff reduced by 13% QoQ.

• YoY, TOPG recorded a cumulative core net loss of RM538.1mn as compared to a profit of RM225.6mn in FY22. We attribute the weaker performance to: i) lower utilisations rates at 30% amid oversupply situation, ii) higher production costs and iii) intensified competition in the glove industry.

Impact

• No change to our FY24-25 earnings projections.

Outlook

• Moving into 1QFY24, we expect the group to achieve a higher sales volume of about 7-10% QoQ as glove demand is expected to gradually pick up to replenish customer inventory, which has reduced substantially. Meanwhile, the ASP is expected to increase slightly in October and November due to rising raw material prices.

• Management shared that there would be no more impairments in the near future. Operationally, management guided that the group will need 6-12 months to turnaround. Overall, we maintain our loss estimation of RM115.6mn for FY24.

Valuation & Recommendation

• Reiterate Sell on the stock with an unchanged TP of RM0.75/share based on 1.2x FY24 P/B.

Source: TA Research - 9 Oct 2023