This article first appeared in The Edge Financial Daily on October 17, 2017

KUALA LUMPUR: Buying interest in Top Glove Corp Bhd shares surged in the last two trading days as its latest set of quarterly financial results has prompted analysts to upgrade the stock with a higher target price (TP).

The stock climbed 6.32%, or 38 sen, yesterday to RM6.39 — the highest closing since Jan 22 last year. Trading volume ballooned to a 11-month high of 13.54 million shares yesterday.

Top Glove’s share price gained 13% in the past two trading days after the glove maker announced that its net profit rose to RM98.62 million in the fourth financial quarter ended Aug 31, 2017 (4QFY17) from RM65.32 million a year ago. It declared a final dividend of 8.5 sen a share for FY17.

Its annual net profit, however, fell to RM332.7 million in FY17 from RM360.73 million. This was despite revenue rising 18% to RM3.41 billion from RM2.89 billion, boosted by a 7% increase in sales volume.

“We expect a positive outlook ahead and raise our net profit for FY18F-19F (forecast) by 5% and 13% respectively — accounting for improvements in operating margins driven by strong demand growth, capacity expansion and higher average selling prices,” said RHB Research analyst Michelle Foong in a results review.

RHB Research has pegged its TP at RM7.

“We are of the view that Top Glove would be able to pass through cost increases as well as balance demand growth and its capacity expansion plans. We now expect the company to generate a two-year (FY18F-20F) net profit compound annual growth rate of 26%,” said Foong in the report.

CIMB Research also upgraded Top Glove shares to “add” from “hold” with a TP of RM6.90 from RM5.75 previously.

CIMB Research expects stronger earnings for the current financial year ending Aug 31, 2018 (FY18), backed by robust global glove demand, less pricing competition on improved demand-supply dynamics and higher production capacity.

“As the world’s largest glove manufacturer, Top Glove should be able to capitalise on robust demand for rubber gloves, in our view. Downside risks are sharp weakening of the US dollar to the Malaysian ringgit (RM) and stiffer-than-expected pricing competition,” said CIMB Research.

Meanwhile, MIDF Investment Bank Bhd analyst Noor Athila Mohd Razali expected to see a little surprise in other glove makers’ forthcoming quarterly results as well.

“I think they (other glove makers) will do quite well in their earnings, supported by the better exchange rate [of] the US dollar against the RM and lower raw material prices.

“With increased capacity in July and August, it will also boost their revenue as well. However, Supermax Corp Bhd will probably be flat partly due to lack of new capacity,” she said when contacted by The Edge Financial Daily.