Review

• Top Glove Corporation Berhad’s (TOPG) reported 1HFY24 results, which were below ours and consensus expectations. The variance was largely attributed to lower-than-expected volumes.

• 2QFY24 net loss after tax reduced by 11.3% to RM51.2mn (vs.RM57.7mn in 1QFY24), in tandem with higher revenue of 11.5% to RM550.3mn. The recovery was driven by higher sales volume of 18% QoQ. However, the blended ASP decreased by 5% QoQ to circa- USD19/1000in spite of a spike in raw material price (NR latex up 15% while NBR latex up 3% QoQ). We believe the mismatch with ASP and cost was due to the time lag in cost pass through.

• 1HFY24 revenue declined 16.5% to RM1.04bn but the loss before tax contracted by 67.8% to RM95.9mn. We attribute the improved performance to: i) less aggressive pricing strategy from China manufacturers, ii) depletion of customer’s inventory and iii) cost efficiency.

Impact

• We revise our FY24 loss forecast to RM159.7mn loss (previous: RM115.6mn loss) after lowering our sales volume assumption by 18.5% to 25.7bn gloves. No change to our FY25/26 earnings estimates.

Outlook

• Moving into 3QFY24, management shared that volumes and ASP will increase by around 18% and 5% QoQ respectively, driven by higher demand and ASP hikes from peers. More importantly, we understand that the pricing gap between Malaysian and foreign manufacturers has narrowed to about USD0.5-USD1 (vs. USD2 previously) per 1000 gloves.

• Management reiterated that Top Glove would be able to pass on the cost increase (NR latex expected to peak in April due to wintering period while NBR latex is expected to soften in June) to customers in 2HFY24 as customers are returning to replenish their depleted stock. In all, the management is optimistic that 2HCY24 profitability would return to the black.

Valuation & Recommendation

• Maintain Sell on Top Glove with an unchanged TP of RM0.80/share based on 1.4x FY25 P/B.

Source: TA Research - 21 Mar 2024