KUALA LUMPUR (March 10): Analysts have lowered Top Glove Corp Bhd’s earnings projections after its disappointing latest set of quarterly results, coupled with an anticipated rise in operating costs.
On Wednesday (March 9), Top Glove reported that its net profit for the second quarter ended Feb 28, 2022 (2QYF22) sank 96.95% to RM87.55 million from RM2.87 billion a year ago, due to average selling prices (ASPs) normalising closer to pre-pandemic levels.
For the six-month period ended Feb 28, 2022, the group’s net profit dropped 94.77% to RM273.27 million from RM5.23 billion in the corresponding period a year prior.
On Thursday (March 10), the consensus among analysts was that Top Glove's earnings had fallen below expectations, thus they downgraded the group's earnings forecasts and target prices (TPs).
In a note, HLIB Research analyst Sophie Chua Siu Li said Top Glove’s earnings were below both the research house’s and consensus estimates by 40% and 29% respectively.
“The key deviation is mainly due to higher-than-expected portion of MI. We cut our earnings forecasts for FY22-24f by 5-18%, as we raise MI portion and higher operating cost assumption, to better reflect the margin compression arising from its inability to fully pass on the higher cost,” she added while maintaining a “sell” call on the stock.
In line with this, her TP for Top Glove was lowered to RM1.33 (from RM1.56 previously), implying a valuation of 17.3 times the price-earnings ratio (PER) on its CY22 earnings per share (EPS) of 7.7 sen.
Similarly, in a note, Kenanga Research analyst Raymond Choo Ping Khoon said Top Glove’s earnings were 30% below its expectations and consensus full-year forecasts, due to lower-than-expected margins as input raw material cost fell slower than the sharper fall in ASP.
He said this prompted the research house to cut its FY22 and FY23 earnings forecasts for the group by 44% and 39% respectively.
“TP is also lowered from RM2.05 to RM1.30 based on 19x FY23E EPS at pre-Covid-19 five-year forward historical mean,” he added as he also downgraded his call on the stock from “market perform” to “underperform”.
Meanwhile, Maybank Investment Bank analyst Wong Wei Sum said she cut her TP for Top Glove to 91 sen (from RM1.61 previously).
While Wong shared the same sentiment on the group’s earnings coming in below expectations, she added that it also put its Hong Kong listing plan on hold as well as noted that Top Glove’s management expects outlook to stay challenging on rising raw material costs.
Accordingly, she said the research house lowered its FY22/23/24 earnings forecasts on Top Glove by 40% to 48%.
“Post earnings adjustments, our TP is lowered to 91 sen (on an unchanged 13x CY23 PER,” she said while maintaining a “sell” call on the counter.
Top Glove’s earnings were also below the expectations of PublicInvest Research, as its research team said the results were 33.2% below its full-year estimates, adding that the discrepancy was mainly due to higher-than-expected operating expenses.
“We slash our earnings projection for FY22-24f by 22-41%, after factoring in higher operating expenses and raw material cost,” it said.
However, PublicInvest Research maintained its “neutral” call on the stock, as it cut its TP for Top Glove to RM1.48 (RM1.90 previously), implying a PER multiple of 17 times pegged to its CY23 EPS of 8.7 sen.
Top Glove’s share price fell as much as two sen or 1.19% to RM1.66 during the morning trade session on Thursday but pared losses as the counter gained two sen or 1.19% to settle at RM1.70 during the noon break.
At the opening bell on Thursday, the counter opened at RM1.69 — after slipping 19 sen or 10.2% to close at RM1.68 on Wednesday, from RM1.87 on Tuesday (March 8) — in the wake of the glovemaker’s disappointing 2QFY22 results.
Separately, on Tuesday, Top Glove shelved its plan to raise US$347 million via a listing on the Hong Kong Stock Exchange, citing that the decision is for the group’s long-term benefit.
In a bourse filing on Wednesday, the group said it will continue to monitor market conditions and pursue the Hong Kong listing at an appropriate time “in view of recent developments in the global financial markets”.
“The company’s decisions are always for the long-term benefit of the company and its stakeholders,” it said in Wednesday’s filing.