KUALA LUMPUR (March 29): Top Glove Corp Bhd remains the top pick for Hong Leong Investment Bank (HLIB) Research due to growth prospects in its developed markets.

According to Top Glove, year-to-date growth by volume (+18%) came mainly from developed markets such as North America (28.1% y-o-y) and Western Europe (38% y-o-y), followed by good performance from Latin America (11.6% y-o-y) and Africa (14.7% y-o-y).

"We attended Top Glove's 2QFY19 briefing. Management highlighted that Aspion acquisition has opened doors to the North American market and they have benefited from being able to cross sell their products. Expect sales from North America to continue to drive topline as the group prepares to enter the Walmart and Walgreens distribution network in the near future," HLIB Research said in a note today.

The research house maintained its buy call on the stock with a lower target price of RM5.31 (versus RM5.51).

"We adjust our FY19-FY21 forecast downward by 3.6% as we recalibrate our tax assumptions upward (from 15% to 18%) in line with management guidance," HLIB Research added.

Commenting on taxes, HLIB Research said the bulk of the unutilised tax allowance (circa RM203 million) is available at newer subsidiaries with a lower profit base, whilst the group has exhausted tax incentives for subsidiaries with higher profit base, thus resulting in a higher effective tax rate (18.3% in 1HFY19 vs. 12.4% in 1HFY18).

"Future earnings growth will come from these new entities that still enjoy the tax allowance. Moving forward, the effective tax rate should remain within the 18%-20% level," it said.

At 10.40am, Top Glove rose 2% or 9 sen to RM4.58 with 2.31 million shares traded.