FOLLOWING its earnings revision, TA Securities Research has downgraded Top Glove Corp Bhd to “sell” (from “hold” previously) while lowering its target price by 19.3% to RM2.60 (from RM3.22).
This comes on the back of the world’s largest glove maker’s 4Q FY8/2021 net profit which plunged 70.1% quarter-on-quarter (qoq) to RM607.9 mil with lower revenue of RM2.12 bil, down 49.2% qoq.
For its FY8/2021, however, Top Glove raked in an almost 350% jump in net profit to RM7.87 bil (FY8/2020: RM1.75 bil) which came in within TA Securities Research’s expectation but fell short of consensus estimates, accounting for 97.4%/92.1% of full-year forecast respectively.
The research house attributed the weaker (quarterly) performance to lower sales volume of 20% to 12 billion gloves due to the temporary halt in shipments to the US from Malaysia (a full three months impact vs two months in 3Q FY8/2021), enhanced movement control order (EMCO) in Selangor which required closures of plants for ten days, and the 60% workforce capacity requirement.
“In addition, average selling price (ASP) dropped 32% qoq in line with the market trend. All these resulted in the PAT margin slipping 20.2 percentage points to 28.7%,” justified analyst Tan Kong Jin in a results review.
Hong Leong Investment Bank Research also downgraded Top Glove to “hold” (from “buy” previously) with a 30% slash in target price to RM2.80 (from RM4) in view of earnings revision.
“We cut our earnings projections for FY8/2022-2023F by circa 30% as we impute a lower utilisation rate assumption, taking into account that the recovery in sales volume to US will be gradual and not immediate,” opined analyst Chan Jit Hoong.
“We have also lowered our ASP assumption further given the less aggressive cut in ASP previously.”
PublicInvest Research lowered Top Glove’s earnings projections for FY2022-2023 by -36.5% on average considering (i) lower ASP; (ii) lower utilisation rate; and (iii) slower capacity addition going forward.
While retaining its “neutral” rating, the research house lowered the glove maker’s target price to RM2.83 (from RM4.40 previously), implying a PE multiple of 17 times (at its pre-COVID historical five-year mean) pegged to its CY8/2023F earnings per share (EPS) of 16.3 sen.
AmResearch maintained its “hold” and three-star ESG (environmental, social and governance) rating on Top Glove but lowered its target price to RM3.10 (from RM3.77 previously) as it expects ASP downtrend to cause a decline in Top Glove’s qoq earnings in 1Q FY8/2022.
“On a positive note, Top Glove’s ESG outlook has improved. The company is also in strong net cash position of RM2.05 bil or 26 sen per share,” added AmResearch.
At 9.06am, Top Glove was down 7 sen or 2.29% to RM2.99 with 3.26 million shares traded, thus valuing the company at RM24.46 bil. – Sept 20, 2021
