TOP Glove Corp Bhd’s stock price outlook receives a mixed review today following the company’s revelation over the weekend that employees at four of its factories have been tested positive for COVID-19.
While maintaining the Big Four glove maker’s “buy” rating, RHB Research slashed its target price by 11% to a new discounted cash flow (DCF)-derived RM8.45 from RM9.50, which according to the research house is “32% upside with circa 13% of FY2021F (August) yield”.
“This (the news) is negative for the stock due to operational risks if some of its factories are shut down temporarily,” commented analyst Alan Lim in a company update.
“Separately, the company has increased its FY2021 dividend pay-out ratio to 70% recently which is good news for investors.”
Recall that the previous enhanced movement control order (EMCO) at Top Glove’s production facilities in Meru, Klang lasted for about one month from Nov 17 to Dec 14, temporarily affecting production for 28 factories.
“However, Top Glove’s long-term earnings outlook remains unaffected,” projected Lim. “While the risk of a temporary suspension has risen, the factories affected should eventually resume operations.”
In this regard, CGS-CIMB has maintained Top Glove’s ESG (environment, social and corporate governance) score at 2.78 out of a possible four points with the social yardstick being rated “moderate” in view of a high number of COVID-19 cases reported at its worker hostels.
Delving on the world’s largest glove maker, AmResearch noted that the impact on revenue stemming from the latest COVID-19 outbreak is lower than 1%, hence the research house is not making any changes to its earnings forecasts at this juncture.
“Our fair value is unchanged at RM6.50 based on CY2022 earnings per share (EPS) over 23 times price-to-earnings ratio (PER),” justified analyst Thong Pak Leng who retained a “hold” stance on Top Glove.
At the close of the morning session, Top Glove was down 8 sen or 1.25% to RM6.34 with 5.48 million shares traded, thus valuing the company at RM52 bil. – Jan 18, 2021
