Friday 29 Mar 2024
By
main news image

Top Glove Corp Bhd
(June 18, RM6.36) 
Maintain “buy” with a higher target price of RM6.79:
Top Glove’s third quarter of financal year 2015 (3QFY15) net profit of RM72.3 million exceeded ours and consensus’ expectations by a variance of more than 7%. Cumulative nine months (9MFY15) net profit of RM177 million accounted for 82.1% and 83.4% of ours and consensus’ full-year forecasts, respectively.

The growth in Top Glove’s revenue was mainly attributable to the increase in sales volume by 6% year-on-year (y-o-y) in 9MFY15 and a stronger US dollar against the ringgit. The increase in sales volume stemmed from both of its main glove segments, namely natural rubber gloves, which increased 9% y-o-y, and nitrile gloves, which increased 18% y-o-y. During the quarter, the average exchange rate for the US dollar against the ringgit was RM3.64 to US$1.

Meanwhile, the group’s 9MFY15 profit after tax and minority interests grew substantially by 19.5% y-o-y to RM177 million. The surge in earnings was mainly due to lower operating expenses, lower minority interest and a stronger US dollar against the ringgit. The operating expenses for 9MFY15 fell 1.4% due to the decommissioning of several old plants supported by the ongoing internal improvements in quality, efficiency and cost control measures. These lower operating expenses translated into better operating profit margin, especially for its Malaysian and Chinese operations.

The 9MFY15 margin for Malaysia is 13.7%, while that for China is 6.3%. The higher margins were mainly from its higher production of nitrile gloves, which carries a higher margin compared with natural rubber gloves.

The completion of Factory F27 (Lukut, Port Dickson) and Factory 30 (Klang), which will be specialise in nitrile glove production, has currently been delayed slightly. The delay in Factory 27 was mainly due to the upgrade of production lines from 14 lines to 16 lines. As for Factory 30, there has been some land development complications due to strict regulations. The additional cost incurred from the delay is minimal. With the completion of all three factories by December 2016, the capacity of the company will increase to 52.4 billion pieces per annum from its current capacity of 44.6 billion pieces per annum. Furthermore, Top Glove’s current production mix of nitrile, natural and vinyl rubber gloves is 30:63:6. Moving forward, the group expects to increase its nitrile capacity to 50%. With the increase in nitrile glove capacity and decommissioning of several old plants, Top Glove has increased its utilisation rate to approximately 80%.

We are revising our FY15 and FY16 earnings estimates upwards by 11.3% and 14.2% respectively. These revisions are to reflect the lower operating expenses, better segmental margins and higher utilisation rates for FY15 and FY16. In addition, for FY16, we are expecting the growth to arise from the additional capacity from its Factory 27 and Factory 6. — MIDF Research, June 18 

Top-Glove_fd_19June2015_theedgemarkets

This article first appeared in The Edge Financial Daily, on June 19, 2015.

      Print
      Text Size
      Share