TOP Glove Corp Bhd is widely expected to post a 1Q FY8/2022 quarterly profit in the range of RM220 mil and RM300 mil or 50.7% to 63.8% quarter-on-quarter (qoq) lower than the net profit of RM607.9 mil in 4Q FY8/2021.
According to TA Securities Research which came up with the above projection, the lower 1Q FY8/2022 profit estimation is due to lower glove average selling price (ASP) of circa-33% and windfall tax.
“Moreover, we expect sales volumes to be flattish as customers would wait longer now before replenishing their stocks in view of the declining ASP,” opined analyst Tan Kong Jin in a company update.
The world’s largest glove maker is scheduled to release its 1Q FY8/2022 results this Friday (Dec 10).
On a year-on-year (yoy) basis, Top Glove’s net profit is expected to plunge by 87.4% to 90.7% from RM2.4 bil in 1Q FY8/2021.
“The plunge in profit is expected to come from lower ASP of 52% and lower sales volumes of 10%,” justified TA Securities Research.
“All in all, we expect Top Glove’s 1Q FY8/2022 results to come in below consensus estimates at about 14.7% of the RM1.8 bil profit forecast for FY8/2022.”
Following earnings revision, the research house lowered Top Glove’s target price to RM1.80 (from RM2.60 previously) while reiterating its “sell” rating on the glove maker.
“Based on our channel checks, glove players have not seen an increase in demand for gloves despite the emergence of the Omicron COVID-19 variant,” observed TA Securities Research. “This could be attributed to customers’ wait-and-see approach to evaluate the severity of the Omicron variant amid declining glove ASP.”
As such, the research house expects the current average plant utilisation rate to hover at 60-65% levels, similar to the utilisation rate in October.
Elaborating on ASP, TA Securities Research gathered that nitrile gloves are selling at US$26-US$30 per 1,000 pieces (vs pre-pandemic US$22.50-24.50) while prices of latex gloves range from US$21 to US$25/1,000 pieces (vs pre-pandemic US$19/1,000 pieces) currently.
“In view of the declining ASP trend, we expect ASP normalisation to happen in 1Q CY2022. Thereafter, the industry is expected to undergo consolidation in 2Q CY2022 and 3Q CY2022 as ASP reverts to normalcy,” added the research house.
At 9.31am, Top Glove was down 3 sen or 1.2% to RM2.47 with 3.36 million shares traded, thus valuing the company at RM20.27 bil. – Dec 8, 2021
