Top Glove Corporation (TOPG MK) - DBS Research 2017-12-20: Earnings Boosted By Higher Volume

Top Glove Corporation (TOPG MK) - DBS Vickers 2017-12-20: Earnings Boosted By Higher Volume TOP GLOVE CORPORATION BHD BVA.SI

Top Glove Corporation (TOPG MK) - Earnings Boosted By Higher Volume

  • 1QFY18 earnings rose 43.8% y-o-y; In-line results.
  • Buoyed by higher volume (+17% y-o-y).
  • Maintain HOLD with TP of RM6.44.



What’s New 


1QFYAug-18 earnings up 44% y-o-y 

  • Top Glove booked a net profit of RM105.4m in 1QFY18 (+43.8% y-o-y; +6.9% q-o-q). This is in line with ours and consensus expectations.


Results review 

  • 1QFY18 recorded revenue of RM938.1m (+19.4% y-o-y; +4.0% q-o-q), in line with higher sales volume (+17.0% y-o-y; +6.5% q-o-q). 
  • ASPs however were flattish y-o-y and decreased by 0.8% q-o-q. This was due to the lower raw material prices, whereby the average natural rubber latex price came down to RM5.00/kg (+12.1% y-o-y; - 8.1% q-o-q) while that for nitrile latex went down to US$1.01/kg (+3.0% y-o-y; -24.7% q-o-q).
  • EBIT/k gloves came in at RM10.52 (+18.4% y-o-y; +14.8% q-o-q). We believe the improvement in EBIT/k gloves were partly due to the margin expansion as the company benefited from the lower raw material prices prior to adjusting ASPs. This was coupled with continuous internal enhancements that resulted in efficiency gains.
  • Going forward, EBIT/k gloves may normalise as savings are passed on to customers.


Outlook


Aspion to be potential catalyst 

  • We deem this acquisition positive for the group as EPS will be accretive (10%-11% EPS increase for CY18F) despite having a larger share base post share issuance. The acquisition will also enable the group to grow its capacity as well as improve surgical gloves margins from 20%-25% to 30%. This will then improve overall group margins. 
  • The group will be able to expand its market share in the surgical glove segment, as 35% of Aspion’s surgical gloves go to developed countries and 65% to emerging markets.

Steady on expansion 

  • Top Glove currently operates 29 glove factories with the capacity to produce 51.9bn gloves p.a. including the latest expansion in Factory 6 Phuket. 
  • It is planning a Factory 31 in Klang (to commence in March 2018) and Factory 32 (December 2018). Together, these expansion projects comprising more than 78 production lines will raise the group’s annual capacity to 59.7bn gloves. 
  • Premised on the expected completion dates provided by management, we expect Top Glove to grow its effective annual capacity by 2%/10%/8% in FY18/19/20F.


Valuation

  • We maintain HOLD on Top Glove with a TP of RM6.44. 
  • Our TP is based on 20x CY18 PE which is above its 5-year mean.




Siti Ruzanna Mohd Faruk DBS Vickers | http://www.dbsvickers.com/ 2017-12-20
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 6.44 Same 6.44



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