DESPITE tough competition among the Big Four glove makers of Malaysia, TA Securities Research maintained its “buy’ rating on Top Glove Corp Bhd at a target price of RM8.84.
“Top Glove announced that it is committed to a special dividend of 20%, in addition to its existing dividend on 50% payout ratio, for 2Q FY2021 to 4Q FY2021.
“As such, the 70% dividend payout ratio on profit after tax and minority interests (PATAMI) will commence from 2Q FY2021.
‘Therefore, the fair value of Top Glove would likely remain elevated, assuming its average selling price (ASP) were to normalise in FY2023 and FY2024,” its head of research Kaladher Govindan pointed out in a company update.
On Dec 29, the markets were stunned when the shares of top Malaysian glove makers went bearish despite many analysts predicting that its boom would continue till 2025.
Shares of glove makers have consolidated on news that COVID-19 vaccines will be rolled out with the markets assuming the pandemic will be levelled out by end-2020.
On that note, Kaladher said in terms of earnings, Top Glove took a slight beating after much of its factories in Klang were placed under the enhanced movement control order (EMCO) between Nov 17 and Dec 14 last year following a COVID-19 outbreak at its premises.
“The EMCO affected 50% of the glove maker’s total production capacity. Due to the timing, we take note that the earning impact is spread in 1Q FY2021 and 1Q FY2022.
“According to its management, the affected plants have resumed operations on Dec 20 last year and are operating in full capacity.
“As such, we expect gloves production in 2Q FY2021 to be higher quarter-on-quarter (qoq) due to the additional capacity. More importantly, ASP for 2Q FY2021 has increased by circa 30% qoq.
“Given the stronger-than-expected ASP, we now expect Top Glove to record a profit of RM12.5 bil for FY2021 which is 7.1 times more than FY2020 profit of RM1.75 bil,” he opined.
Kaladher added that Top Glove is also in communication with the US Customs and Border Protection (CBP) after the latter issued a ban on the former’s products for alleged use of “forced labour”.
“We understand that the detention order is pending verification by independent international consultant on its workers’ accommodation.
“The glove maker is working hard to meet requirements under the Worker’s Minimum Standards of Housing and Amenities Act 1990 (Act 446),” Kaladher remarked. – Jan 5, 2020.
The Peninsula Malaysia Labour Department has opened 19 investigation papers against the glove maker for breaching act 446 and will be submitted the paperwork to the Attorney-General’s Chambers soon. – Jan 5, 2021.
