Only downside beckons for Top Glove after first quarterly loss since listing

EXPECTING a 90% year-on-year (yoy) dip in Top Glove Corp Bhd’s FY8/2023F core net profit, CGS-CIMB Research has reiterated its reduce” rating on the world’s largest glove maker while slashing its target price by half to 50 sen from RM1 previously.

Assuming the average selling price of US$19/1,000 pieces (-28.5% yoy) and utilisation rate of 50% (FY8/2022: 50%), the research house further expects supply glut in the global glove sector to only dissipate towards 2H FY8/2023F.

“While Top Glove intends to raise its ASPs by 5% in October 2022 to pass on cost hikes, this is likely to be difficult in the near term given the current operating environment (industry utilisation rate remains low at 40%-45% while ASPs currently stand at US$18-US$20/1,000 pieces),” projected analyst Walter Aw in a results review.

Yesterday (Sept 20), Top Glove found itself in the red for the first time since its listing in 2001 with a net loss of RM52.6 mil for its 4Q 8/FY2022 (4Q FY8/2021: RM447.4 mil) which Maybank IB Research described as below both its and consensus estimates.

“Near-term outlook remains challenging due to on-going inventory depletion activities at the customers end while competition is still stiff especially from the China counterparts,” opined analyst Wong Wei Sum.

“We lower our FY8/2023-2024 earnings forecasts by 34%-58% and introduce FY8/2025E. Our target price is lowered to 52 sen (from 65 sen previously) while our “sell” call is maintained.”

As of end-August, Top Glove had RM551 mil net cash or 7 sen//share, according to Maybank IB Research. “To preserve cash, DPS (dividend per share) for FY8/2022 is just 1.2 sen (declared in 1Q FY8/2022 and paid on Jan 10; a 98% drop yoy),” noted the research house.

Hong Leong IB (HLIB) Research which also retained its “sell” rating on Top Glove with a much lower target price of 54 sen (from 83 sen previously) reckoned that it would not be easy for the glove maker to pass on part of its cost increase to glove buyers (ASP +5% in October) given the persistent demand-supply imbalance.

“We expect utilisation rates to remain low in the coming months as glove buyers have yet to fully deplete their inventories in hand,” reckoned analyst Sophie Chua Siu Li.

“Any potential price adjustments in the near future are also expected to be marginal, mainly to share part of the higher costs rather than a positive signal of improving operating environment.”

At the close of today’s mid-day trading, Top Glove’s sell-down remains unabated with the company having edged down 5 sen or 7.09% to 65.5 sen with 143.58 million shares traded.

Although Top Glove is the day’s most actively traded stock with thus far (market cap: RM5.38 mil), it has also surpassed Supermax Corp Bhd as the cheapest Big Four stock currently (Supermax’s last traded price was 68.5 sen). – Sept 21, 2022

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