RHB Research maintains 'buy' call with higher TP for Top Glove

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KUALA LUMPUR (July 7): RHB Investment Bank Bhd Research (RHB Research) has maintained its "buy" call for Top Glove Corp Bhd with a higher target price (TP) of RM24.80 a share premised on increasing demand and a tight inventory level.

In a research note today, the research house said it raised its earnings estimates and TP due to higher average selling prices (ASPs).

"This premium is justified due to Top Glove’s status as the world’s biggest glove producer and its ability to raise ASPs more than its peers.

"We expect glove demand to surge in the US. Demand should continue to rise throughout the third quarter this year as Covid-19 is still spreading," it said.

In 2019, the US consumed an estimated 92.7 billion pieces of gloves per annum — equivalent to 35% of global demand — making it the world's biggest glove consumer.

RHB Research said glove inventory was estimated to be extremely low at 11 billion pieces or less than half a month’s supply.

It said the increase in ASP assumptions was based on a shortage of certain raw materials used to manufacture gloves, which had capped near-term supply.

"We increased our financial year 2020 to 2022 ASP assumptions by 1% to 4% and earnings forecasts by 4% to 18%," it said.

For the fourth quarter this year, core earnings should also show a significant improvement quarter-on-quarter as ASPs are on an increasing trend, it said.

RHB Research added that post Covid-19, Top Glove’s earnings growth outlook remains positive as glove demand is expected to continue its uptrend of an 8% to 10% growth on higher hygiene awareness globally. 

As at 10.35am, Top Glove was 46 sen higher at RM20.42, with 6.83 million shares traded.