Top Glove (TOPG MK) - Maybank Kim Eng 2018-03-16: Aspion To Lift Earnings Ahead

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TOP GLOVE CORPORATION BHD BVA.SI

Top Glove (TOPG MK) - Aspion To Lift Earnings Ahead

Good set of results but priced in 

• Despite the lower USD/MYR, 2QFY8/18 earnings were stronger due to higher sales volume, better operating leverage and upward adjustment in ASPs. 
• We maintain our FY19-20 EPS forecasts but raise FY18F EPS by 2% due to the earlier-than-expected completion date for the acquisition of Aspion. However, our Target Price of MYR9.85 is retained as it is based on target 25x PER (+2SD to mean) on unchanged FY19E EPS.

Results within expectations 

• Top Glove's 2QFY18 core net profit of MYR109m (+9% q-o-q, +31% y-o-y) brought 1HFY18 core net profit to MYR210m (+34% y-o-y) and made up 48% of our and street’s full-year forecasts. 
• The Group turned net debt of MYR265m as at end-Feb 2018 (net gearing: 13%) as it paid for its recent two acquisitions (fully-paid for Eastern Press and 10% deposit for Aspion).

QoQ: Slightly higher volume and margins 

• Key takeaways from the 2QFY18 results:
  1. Revenue was higher (+2% QoQ, +13% y-o-y) as the higher sales volume (+3% q-o-q, +21% y-o-y) and blended ASP (+4% q-o-q, +4% y-o-y) outweighed the lower USD/MYR;
  2. EBITDA margin improved to 16% (+0.8-ppt q-o-q, +1.4-ppt y-o-y) due to the higher operating leverage with its plant utilisation rate at a record high of 90% (1QFY18: 85%). Additionally, the upward adjustments in ASPs also cushioned the higher costs (i.e. gas tariff, foreign worker levy);
  3. bottomline was also further lifted by a lower tax rate of 12% (-1.5-ppt QoQ, -7.3-ppt y-o-y) owing to the tax incentives available.

Aspion to contribute from 3QFY18 

• While the sequential sales volume growth may slow on the potential resumption of glove supply from China, Top Glove’s overall sales volume could be lifted by Aspion (acquisition to complete in early-Apr 2018). We estimate that Aspion may lift its overall sales volume by c.7% per month.
• We maintain our FY19-20F EPS but raise FY18F EPS by 2% as we impute for an additional month of earnings contribution from Aspion (we had earlier assumed Aspion to contribute from May 2018 onwards).

Lee Yen Ling Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-03-16

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 9.850 Same 9.850