Review

• Top Glove Corporation Berhad’s (TOPG) 9MFY24 core net loss of RM149.5mn, after stripping out gain from disposal of land (RM57.4mn) and reversal of inventories (RM33.8mn), came in within our expectations.

• 9MFY24 core net loss reduced by RM304.1mn to RM149.5mn despite lower revenue of 5.6% to RM1.7bn. Sales volume remained flattish while ASP decreased marginally. This can be attributed to: i) improved utilisation rates as the group consolidated production facilities and ii) improved operational efficiency. 3QFY24 plant utilisation stood at 45-50%.

• QoQ, revenue increased 15.7% to RM636.9mn driven mainly by higher sales volume of 13% to c. 6.7bn gloves and higher ASP of 3% to about USD19/1000 gloves. Management shared that some shipments were delayed due to the port congestion (volumes could have been up by 18% instead of 13%). Overall, operational losses reduced to RM34.3mn in 3Q24 as compared to RM58.7mn loss in 2Q24.

Impact

• No change to our FY24-26 earnings projections.

Outlook

• Management guided that the strong growth in volumes would continue in the next quarter on the back of stock replenishment activity. We believe that 4QFY24 volumes and ASP would increase by 20% and 2% QoQ respectively. With that, we expect the utilisations rates to improve to 55% from 45-50% in 3QFY24. Note that current sales volumes are still 50% lower than pre-pandemic levels.

• Management shared that Top Glove’s current running capacity stood at 60bn gloves per annum (vs. 95bn gloves production capacity). As such, the group plans to resume the factories that were shutdown previously, adding 8-10 double former lines (c. 2bn gloves) per month.

Valuation&Recommendation

• Reiterate Sell on Top Glove with a TP of RM1.03/share based on 1.8x FY25 P/B.

Source: TA Research - 20 Jun 2024