WHILE the December floods brought about minimal impact to Top Gloves Corp Bhd’s production facility, a more pressing concern for its investors is that the upside for its stock is capped as the average selling price (ASP) downtrend continues.
However, the downside is also limited as its share price is now close to the pre-pandemic level of RM1.95 which was last recorded on Jan 31, 2020, according to AmResearch.
“For 2022, we believe that the company’s near-term focus will be to increase its utilisation rate instead of expansion,” opined analyst Alan Lim Seong Chun in a company update.
“Recall that in 1Q FY8/2021, Top Glove registered a weak utilisation rate of 55%. This should have improved to around 60% currently but it is still below the pre-pandemic level of 75%-80%.
Top Glove is expected to release its 2Q FY8/2022 earnings in the first half of March.
“Due to the ongoing trend of lower ASP for gloves, we expect 2Q FY8/2022 earnings to be weaker quarter-on-quarter (qoq),” projected AmResearch. “However, its balance sheet should remain strong with a net cash position.”
As a whole, the research house retained its “hold” call on Top Glove with an unchanged fair value of RM1.95 premised on a price-to-earnings ratio (PER) of 18 times on the company’s CY8/2023F earnings per share (EPS).
There is no ESG (environmental, social and governance)-related fair value adjustment based on the research house’s three-star ESG rating.
Moving forward, AmResearch does not expect the world’s largest glove maker to face a shortage of foreign workers over the next six to 12 months due to the prevailing low utilisation rate.
“Despite the surge of COVID-19 cases globally due to the Omicron variant, we understand that the ASP for gloves did not increase as the market is still digesting high capacity of gloves which was completed in 2021,” observed the research house.
“Earnings estimates are maintained. We make no changes to our FY8/2022F, FY8/2023F and FY8/2024F earnings estimates of RM655 mil, RM898 mil and RM1.06 bil respectively.”
At 12.03pm, Top Gloves was down 6 sen or 2.76% to RM2.11 with 5.04 million shares traded, thus valuing the company at RM17.32 bil. – Jan 24, 2022
