AS Malaysia transition to the endemic stage, MIDF Research has summed up Top Glove Corp Bhd’s near term prospect with a cautious feeling about the group’s forward trajectory following a company visit.
With the current shift of the global economy to endemicity, the research house said the world’s largest glove maker is undergoing a transition period due to demand-supply imbalance where it expects to see its net profit margin normalising in the near-term after reaching a historic high in FY8/2022.
“Nonetheless, the group expects demand to grow following the period of transition albeit at a moderate pace due to higher hygiene awareness and increased usage in new industries,” MIDF Research pointed out in a company update.
“We make no changes to our earnings forecast for FY2022/2023/2024F. Moving forward, earnings outlook is expected to remain subdued due to lack of immediate catalyst.”
All-in-all, the research house maintained its “neutral” stance on Top Glove with an unchanged target price of RM1.75. “Our valuation pegs Top Glove at 14.5 times FY8/2023F earnings, at par to its two-year historical mean. Meanwhile, dividend yield is decent at 3.5% for FY8/2022F,” noted MIDF Research.
Due to entry of new suppliers in the nitrile glove segment, the research house said the group expects stiff competition in this segment.
“Meanwhile, the natural rubber margin has been recording better performance due to stronger demand compared to the nitrile rubber margin. Additionally, the cost structure for nitrile gloves has been on the rise in line with the higher crude oil prices,” observed the research house.
“Coupled with the higher competition, the cost pass-through for the nitrile rubber segment is more challenging at this juncture thereby affecting margins.”
In light of the current glove demand and supply imbalance, Top Glove has deferred some of its expansion plans, according to MIDF Research.
“Additionally, the current transition to the endemic stage and higher vaccination rates also poses uncertainty to the group’s expansion plans,” reckoned the research house.
“However, we think that the increase in the glove imports from US post-CBP (US Customs and Border Protection) will continue to improve demand and enable the group to re-capture its market share in the country which could potentially resume its expansion plans.”
At 10am, Top Glove was down 2 sen or 1.16% to RM1.71 with 3.63 million shares traded, thus valuing the company at RM14.03 bil. – April 27, 2022
