Review

• Top Glove Corporation Berhad’s (TOPG) 1QFY24 net loss of RM57.7mn was within our expectations but above consensus loss projections, considering our full-year loss forecasts of RM115.6mn and consensus estimates of RM53.4mn loss.

• 1QFY24 loss after tax reduced to RM57.7mn (vs. net loss of RM168.2mn in 1QFY23) despite lower revenue of 22.0% to RM493.5mn. We attribute the improved performance to cost optimisation efforts and the gradual recovery in glove demand.

• QoQ, revenue rose 3.7% to RM493.5mn, which reduced the core net loss to RM57.7mn as compared to a core net loss of RM74.6mm in 4QFY23. We understand that sales volumes grew 9% QoQ but ASPs declined 8% QoQ mainly due to the resumption of replenishing activity and lower raw material price in 4QFY23.

Impact

• Maintain FY24-26 earnings projections.

Outlook

• Driven purely by the uptrend in glove orders and as customers replenish inventory, management expects sales volumes to grow by about 30% for December and January deliveries. In addition, we gather that China glove players delivery time have increased to 60-90 days (previously 30 days), leading to some overflow to Malaysian players. However, we note that the group has not felt any impact or any additional increase in orders from the recent spike in Covid cases. With that, ASP remains rather flat.

• Overall, Top Glove plant utilisation rate is expected to improve to 40% (previously about 30%). On the cost front, the increase in latex raw material cost (+4% QoQ) due to wintering season and the expected higher natural gas cost of about 3% in January 2024 will be offset by lower nitrile raw material cost of 5%. Coupled with the better demand and cost efficiency, management hopes that the group will achieve a turnaround by the end of 2024.

• Meanwhile, the pricing gap between Malaysian and China players have narrowed to about USD1 per 1000 gloves (previously USD3), giving customers more options. As such, management believes that it will be easier to pass through the cost increase to customers moving forward.

Valuation & Recommendation

• Reiterate Sell on the stock with an unchanged TP of RM0.80/share based on 1.4x FY24 P/B.

Source: TA Research - 21 Dec 2023