DESPITE posting a commendable 9M FY8/2021 results, Top Glove Corp Bhd will have to brace for a 5% month-on-month decline in its average selling price (ASP) in the months ahead.
This is evident with the current price trends which resulted in the glove maker’s ASP retreating by 16% quarter-on-quarter (qoq) in its latest 3Q FY8/2021 results, according to TA Securities Bhd.
However, this can be mitigated by the company’s robust expansion plan whereby its total capacity is expected to rise by 11 billion gloves annually by end-2021, an increase of 11% from the current capacity of 100 billion gloves.
“Thereafter, the group targets to add additional 27 billion gloves or 24% to boost its capacity to 138 billion gloves by end-2022,” wrote analyst Tan Kong Jin in a results review.
“For 4Q FY8/2021, sales volumes are expected to increase by 10-20% qoq as 3Q FY8/2021 volume was affected by the exports ban imposed by CBP (the US Customs and Border Protection).
Yesterday, the world’s largest glove maker dished out a decent set of results with a net profit of RM2.06 bil for its 3Q FY8/2021 which was 490% higher than the same period a year ago (3Q FY2020: RM350.03 mil).
Nevertheless, the company’s net profit eased 29% quarter-on-quarter (qoq) (2Q FY8/2021: RM2.9 bil) on the back of adjustments in line with glove market pricing trends to average selling prices (ASPs) which had peaked in February 2021.
Two welcoming news shared by the management, according to TA Securities Research, is that the CBP is currently at the verification stage as Impactt (Top Glove’s’s consultant) has certified that any indicators of forced labour have been fully remediated.
Moreover, the glove maker remains committed to its proposed initial public offering (IPO) in Hong Kong. “Assuming the completion of exercise in FY2022, we estimate EPS (earnings per share) dilution of circa 8% post completion of the dual-listing exercise,” projected TA Securities Research.
All-in-all, the research house maintained its “buy” rating on Top Glove but lowered its target price to RM5.30/share (from RM5.77 previously).
Meanwhile, AmBank Research is more bearish with its outlook on Top Glove as the glove maker’s re-entry into the high-premium US market would be challenging given the current ban would have resulted in its market share been snapped up by other industry peers.
“Thus, in the absence of lasting rerating catalysts, we expect a slow and steady decline in Top Glove’s share price over the course of the next three quarters,” projected the research house.
“While the eventual lifting of US sanction will likely cause a notable sentiment-driven upswing, we believe that it, too, will peter in the face of waning ASP and general glove demand.”
As a whole, AmResearch retained its “hold” call on Top Glove m with a lower fair value of RM4.45 (from RM5.24 previously).
At 9.17am, Top Glove was up 6 sen or 1.24% to RM4.90 with 1.43 million shares traded, thus valuing the company at RM40.13 mil. – June 10, 2021
