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Wednesday, March 14, 2018

Top Glove earnings could be flattish quarter-on-quarter

Wednesday, 14 Mar 2018

Quarterly results: A worker conducts quality check on rubber gloves at Top Glove’s plant in Klang. Top Glove, which is the world’s largest glove maker, is set to release its results soon for the second quarter ended Feb 28, 2018

PETALING JAYA: Maybank Investment Bank Research foresees Top Glove Corp Bhd ’s upcoming second-quarter earnings to be flattish and within expectations.

It said organic volume growth ahead could be slower as China resumed production gradually and Malaysian players expanded capacity. “However, earnings growth could accelerate from the fourth quarter of financial year 2018 (FY18) with contribution from Aspion,” it said.

Maybank Research has maintained its earnings per share forecasts, “hold” call and target price of RM9.85.

“Trading at 12-month forward price-to-earnings of 25 times, we think the current valuation has already priced in all the positives,” it said.

Top Glove, which is the world’s largest glove maker, is set to release its results soon for the second quarter ended Feb 28, 2018.

The company achieved RM105mil net profit in the first quarter of FY18.

Despite the lower US dollar-ringgit exchange rate (-5% quarter-on-quarter) impacting revenue receipts and higher costs (gas tariff hike and foreign worker levy), earnings could be cushioned by a higher sales volume and the upward adjustment in average selling prices (ASPs). ASPs of latex gloves were raised by 6% in December while ASPs of nitrile remain unchanged.

Last Thursday, shareholders voted in favour of Top Glove’s acquisition of Aspion, a surgical glove specialist, for a purchase consideration of RM1.37bil, with 90% of the amount (or RM1.23bil) to be paid in cash and the balance to be paid in 21 million new Top Glove shares.

The deal could be completed in early-April, slightly ahead of its initial target of mid-April.

“We have incorporated for Aspion’s earnings from May 2018 in our FY18-FY20 earnings forecasts,” it said.

Maybank Research said Top Glove’s higher sales volume in FY17 to first half of FY18 could be partially due to the production cut in China and shortage of gas supply during the winter months.

“We think its sales volume might see slower growth ahead as China gradually resumes production and Malaysia expands capacity.

“The sales lead time for its latex and vinyl gloves remain high at 60 days.

“However, the sales lead time for its nitrile glove has already shortened to 30 to 45 days (from 60 days in the second half of calendar year 2017), potentially due to the recent new supply in the market,” it said.


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