TOP GLOVE CORPORATION BHD (SGX:BVA)
Top Glove - Earnings Surprises Ahead!
Raising EPS and Target Price; maintain BUY
- With Top Glove (SGX:BVA)'s sales secured until Apr 2021 and some of its peers’ capacities also locked-in for the next 6-12 months, we expect the present positive environment to sustain into 1Q21. We raise our FY20-22E EPS by 54%/112%/5%, projecting for its EPS to increase by 128%/35% in FY20-21E and to fall 50% in FY22E.
- Based on an unchanged CY21 P/E of 30x (+1SD to mean), our target price is raised to MYR10.95 (+73%). (Using FX rate of MYR1 to SGD0.3265, we derive target price of 3.58 in SGD term)
- Key catalyst is its potentially superb upcoming 3QFY8/20 results (to release on 18th Jun).
Secured orders until Apr 2021
- Top Glove has secured orders until Apr 2021 with its sales lead time stretched to 10 months now (from 5 months in Apr 2020 and 1.5 months before the COVID-19 outbreak). However, the ASPs quoted to customers are indicative ASPs and could still be revised 1-2 months prior to the deliveries.
- Also, there have been some ad-hoc orders (c.3-5% of quarterly total sales) with ASPs substantially higher than the market’s ASPs. Top Glove's plant utilisaton rate has risen to c.97% (from 85% in 2QFY8/20) and it is sticking to its expansion schedule (refer to Figure3 in attached PDF report).
Sector-wide ASP hikes
- In addition to Top Glove, we also note that other key players have fully-sold their capacities for the next 6-12 months (Kossan: sold until end- 2020, Sri Trang Agro-Industry (SGX:NC2): latex gloves capacity is sold until Mar 2021 while nitrile is sold until Jun 2021). The sector ASPs have been rising since Mar 2020 and we expect the present ASPs to sustain into 1Q21.
3QFY8/20: To beat consensus significantly
- We expect Top Glove's net profit of MYR220m (+90% q-o-q, +2.9x y-o-y) on:
- higher sales volume (+c.15% q-o-q, +c.14% y-o-y);
- EBITDA margin of 22% (2QFY20: 17%) on better ASP and higher operating leverage.
- We also expect Top Glove’s 4QFY20 net profit to be even higher at MYR350m based on our assumed revenue growth of 15% q-o-q and EBITDA margin of 28%.
- Our FY20-22E EPS is raised by 45%/107%/19% respectively, as we raise our ASP assumptions, which resulted in substantial EBITDA margin expansion of 3.8-ppt/7.3-ppt/0-ppt in FY20-22E.
- See Top Glove Share Price; Top Glove Target Price; Top Glove Analyst Reports; Top Glove Dividend History; Top Glove Announcements; Top Glove Latest News.
Lee Yen Ling
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-05-12
SGX Stock
Analyst Report
10.95
UP
6.320
