KUALA LUMPUR: Research houses have raised the target price (TP) for Top Glove Corp Bhd amidst the Covid-19 pandemic and tight supply condition.
RHB Research said it had upped the TP for the stock to RM13.30 from RM7.01, a 43% upside and 2% yield.
“We expect a superb third-quarter financial year 2020 (Q3 FY20) results ahead – almost doubling quarter-on-quarter – as a tight demand-supply dynamic has driven up average selling prices (ASPs).
“As the world’s largest gloves producer, Top Glove stands to benefit from the unprecedented surge in demand for gloves due to Covid-19. The counter is now top pick for the sector,” it said in a note today.
RHB Research said it expected 3QFY20 earnings to surge 85% to RM215 mil compared to RM116 mil in 2QFY20.
It has also increased the demand growth estimates to 15%-18% in 2020 compared to 13%-15% previously.
On the supply side, the research house has reduced the supply growth estimate to 10.1% from 11% previously.
The Movement Control Order (MCO) has caused construction delays for most glove companies under its coverage.
“Even after (the pandemic) subsides – which we believe it will eventually – the world is unlikely to lower gloves consumption, as the fear factor remains.
“This should result in a structural increase in gloves demand and lead to rising health awareness globally,” it added.
Meanwhile, Kenanga Research has raised the TP for Top Glove to RM12.60 from RM6.50 and upgraded the counter to outperform from perform.
Top Glove has received strong orders from China, Hong Kong, Singapore and South Korea, Europe, the US and other countries.
“With current utilisation levels at more than 90%, the group is able to further ramp up production close to 100% to meet the surge in demand.
“It has new capacity coming onstream with the F2B and F5A plants having commenced operations, which will add 3.2 billion pieces of gloves per annum.
“With other conditions remaining the same, a 1% increase in volume sales and ASP will raise our FY20 and FY21 net profit by 1% and 1.2%,” it added.
Kenanga Research has raised Top Glove’s FY20 and FY21 net profit by 41% and 61% respectively, after taking into account higher growth for volume sales from 13%-16% to 15%-28%.
ASP projection has also been raised from US$21 (RM91) per 1,000 pieces to US$26.
At the noon break, Top Glove shares rose 71 sen to RM10.02 with 23.6 million shares changing hands. – May 14, 2020, Bernama
