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Friday, March 20, 2020

Kenanga maintains 'market perform' on Top Glove, TP at RM5.95

ANALYST REPORTS
Friday, 20 Mar 20208:53 AM MYT

KUALA LUMPUR: Kenanga research has kept its market perform rating and target price of RM5.95 on Top Glove Corp Bhd after the glove maker's first half earnings came within expectations.

According to the research house, Top Glove's 1HFy20 Patami of RM227mil, which was 5% higher year-on-year, met 49% and 47% of its and consensus full-year estimates.

For the recent quarter, group revenue rose 2% due to higher sales volume led by latex but more than offset by lower nitrile.

Moving forward, Top Glove's earnings are expected to be driven by new capacity expansion, potentially higher average selling prices and weakening US dollar/ringgit conversion.

"Ceteris paribus, a 1% weakening of RM against USD will lead to an average 1%-2% increase in the net profit of rubber glove players," said Kenanga.

Storn sales orders are coming in from Europe, US and other countries, after the initial stage of the Covid-19 outbreak saw sales orders come mainly from China, Hong Kong, Singapore and South Korea.

The group also said it is able to ramp up its production levels to close to 100% from the current 90%, while there is new capacity coming on-stream from F2B and F5A having commenced operations.

The facilities will add 3.2 billion pieces of gloves per annum when fully operational.

However, the research house added that the share price could be capped by the conversion of exchangeable bonds.

"Recall, back in 2019, Top Glove issued USD200m in convertible bonds as part of their debt restructuring. The bonds can be converted into new shares at RM6.10 per share," it said.

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