HARSH reality seems to have sunk in for Top Glove Corp Bhd which on Oct 19, 2020 was “only 40 sen away from becoming the most valuable company on Bursa Malaysia”, capable of overtaking Malayan Banking Bhd (Maybank) which then had a market capitalisation of RM80.94 bil (The Malaysian Reserve, Oct 20, 2020).
Fast forward to today, the world’s largest glove maker – alongside its Big Four peers –are very likely a pale shadow of themselves as evident in the former posting a 95% year-on-year (yoy) decline in its 1H FY8/2022 core net profit to RM272 mil which was below CGS-CIMB Research’s expectations at 41% and 29% of the research house’s and Bloomberg’s FY8/2022F estimate consensus.
“We reiterate ‘reduce’ with a lower target price of RM1.30 (from RM1.50 previously),” opined analyst Walter Aw in a results review.
“In our view, the worst is not yet over for Top Glove as we believe that its current valuations (a 21.4% premium to its five-year mean) have yet to account for further downside to its earnings while the operating environment remains weak.”
CGS-CIMB Research is not the only research house with a pessimistic view of Top Glove’s immediate future.
Maybank IB Research maintained its “sell” rating on Top Glove with a lower target price of 91 sen (from RM1.61 previously) post its earnings adjustments by -40% to -48% for FY8/2022-FY8/2023-FY8/2024.
Kenanga Research downgraded Top Glove to “underperform” (from “market perform” previously) while slashing the company’s target price to RM2.05 (from RM1.30 previously) as the research house trimmed its FY8/2022E-FY8/2023E net profit by 44%-39%.
TA Securities Research which expects current oversupply situation to continue for another six to nine months has reiterated its “sell” rating on Top Glove with a lesser target price of RM1.32 (from RM1.80 previously).
JF Apex Securities Research which deemed Top Glove’s business outlook to remain challenging as average selling price (ASP) continues to decline given pricing pressure from existing as well as new players, retained its “sell” call on the company with a lower target price of RM1.50 (from RM1.70 previously).
Hong Leong Investment bank (HLIB) Research which doubted the ability of glove makers to fully pass on their cost increase to their buyers given the current competitive operating environment has maintained its “sell” rating on Top Glove with a lower target price of RM1.33 (from RM1.56 previously).
However, MIDF Research retained its “neutral” rating on Top Glove but lowered its target price to RM2.27 (from RM1.75 previously) after trimming earnings prospects by -39.2% for FY8/2022F and -28.2% for FY8/2023F.
PublicInvest Research also reiterated its “neutral” call on Top Glove but lowered the company’s target price to RM1.48 (from RM1.90 previously) as it expects the demand for gloves to remain robust even post-pandemic as gloves are considered essential items within the healthcare industry and due to increasing hygiene awareness as well as higher glove usage per capita from developing countries.
At 10.25 am, Top Glove was down 1 sen or 0.6% to RM1.67 with 8.99 million shares traded, thus valuing the company at RM13.71 bil. – March 10, 2022
