Bullish analysts expect Top Glove net profit to swell above RM10b for FY21, before falling in FY22

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KUALA LUMPUR (Sept 18): After posting a record-breaking RM1.87 billion net profit for the financial year ended Aug 31, 2020 (FY20), Top Glove Corp Bhd’s profits are expected to grow by more than ten times in FY21, according to some analysts' forecasts.

The stunning growth in profitability is due to higher-than-expected average selling prices (ASPs) and longer demand lead times.

The most optimistic of the lot was Maybank IB Research, which predicted that the glove manufacturer's net profit will climb to RM11.22 billion, underpinned by RM27.8 billion in revenue.

Maybank IB said it sees room for the ASP of latex powder-free gloves to rise further, on strong demand due to shorter waiting time and lower price compared with nitrile gloves.

“Our model has already assumed for higher ASPs until 3QFY21 and to decline from 4QFY21 on more new supply,” said the research firm.

Maybank IB has pegged its target price (TP) for the group at RM9.53.

Credit Suisse, which set its TP at RM16.20, expects Top Glove's net profit to soar to RM10.97 billion with solid revenue of RM21.5 billion.

CGS-CIMB Research expected the group's net profit to soar to RM10.38 billion, thanks to RM20.42 billion in revenue on higher ASP, as the strong global demand is expected to sustain until at least end-FY21.

The firm also upped its TP from RM9.20 to RM10, based on 17 times CY22 as it rolls over its valuation year.

RHB Research Institute, which has pegged its TP at RM9.50, forecasts net profit to hit RM9.47 billion, as revenue rises to RM23.25 billion.

PublicInvest Research has set its TP at RM9.70 and predicts RM9.15 billion net profit based on revenue of RM17.83 billion.

It noted that spot orders are currently priced at around US$120 per thousand pieces, with 30% of the group’s total capacity allocated for such orders.

“As such, we lift our earnings forecast for FY21-22F by 203% to 354%, as we incorporate the effects of higher ASP and increased production capacity into our earnings projections,” said the research house.

With a TP of RM10.68, Kenanga forecasts RM6.67 billion of net profit for FY21, with a revenue of RM17.29 billion.

Meanwhile, AmInvestment Bank expects net profit to hit RM6.54 billion with a revenue of RM21.81 billion. It also has raised the glove maker’s TP to RM8.40.

However, net profit is expected to plunge in FY22 as demand for gloves weaken. “We reiterate that such supernormal profits are not sustainable in nature and earnings growth should be tapering off from FY22F onwards,” said PublicInvest.

For FY22, Credit Suisse expected net profit to drop to RM4.96 billion with a revenue of RM14.6 billion. Maybank IB predicts RM4.26 billion net profit underpinned by a revenue of RM17.8 billion, while AmInvestment forecasts RM2.37 billion net profit on the back of RM11.6 billion in revenue.

Meanwhile, CGS-CIMB forecasts a net profit of RM5.3 billion with a revenue of RM14.32 billion. RHB expected net profit to fall to RM7.26 billion, underpinned by RM20.11 billion in earnings, while PublicInvest forecasts RM4.21 billion net profit with a revenue of RM12.34 billion. Meanwhile, Kenanga expected earnings to decline to RM4.1 billion, with a revenue of RM13.51 billion.

At the time of writing, Top Glove rose 21 sen or 2.7% to RM8, valuing the group at RM66.25 billion. It saw some 57.82 million shares changed hands.

Lam Jian Wyn