Top Glove - CGS-CIMB Research 2021-01-11: Gloves ASP To Still Rise In Jan & Feb 21


Top Glove - Gloves ASP To Still Rise In Jan & Feb 21

  • We remain positive on Top Glove as we think it is undervalued (6.2x CY21F P/E) given its strong earnings prospects for at least the next 12 months.
  • Top Glove recently announced it will raise 2Q to 4QFY21 dividend payout to 70% (from 50%), which translates into attractive FY21 dividend yield of 13%.
  • Top Glove remains an ADD, with 37% upside to our target price.

Well-attended meeting with Top Glove

  • We recently hosted a meeting with Top Glove (SGX:BVA) at our virtual CGS-CIMB Malaysia Corporate Day. Top Glove was represented by its chief financial officer, Lim Cheong Guan, and finance manager, See Sook Fong. The discussions focused on:
    1. average selling prices (ASPs),
    2. dividend payments, and
    3. workers’ welfare.

Increase in both ASPs and demand shows no sign of slowing down

  • Backed by COVID-19-led global glove demand (COVID-19 cases in many countries were charting new daily highs as of yesterday), Top Glove’s order backlog is still robust at 160-560 days, depending on glove type.
  • Also, Top Glove stated that its average selling prices (ASPs) should rise by 15% m-o-m and 10% m-o-m in Jan 2021 and Feb 2021, respectively. Another round of ASP increase in Mar 2021 is highly likely, of at least 5% m-o-m. Note that we estimate that Top Glove’s ASP for NBR (nitrile butadiene rubber) gloves reached US$113/1k pieces in Dec 2020.

Positive on 70% dividend payout for 2Q to 4QFY21

  • In a recent announcement, Top Glove stated plans to raise its dividend payout to 70% (additional 20% special dividend on top of existing dividend payout policy of 50%) from 2QFY21 (Dec 2020 to Feb 2020) to 4QFY21 (June to Aug 2021). In addition, Top Glove is not discounting the possibility that it will continue to pay a 70% dividend payout post 4QFY21 assuming that earnings remain robust.
  • In this note, we input the higher dividend payout into our FY21 (Sep 2020 to Aug 2021) estimates and now project Top Glove to pay dividend of RM0.831/share for FY21, reflecting a 13% dividend yield. See Top Glove Dividend History.

Will continue efforts to improve workers’ welfare

  • Top Glove will continue its emphasis on improving its workers’ welfare, particularly in the aspect of accommodation, to meet the requirements of Act 446. This includes recent efforts to move 3,200 workers to a new third-party hostel (can host 5,000 pax). We also gather that Top Glove is earmarking RM195m capex to build and purchase new workers’ hostels near its existing factories in the next 1-2 years.
  • Furthermore, Top Glove said it was confident the US CBP ban will be lifted post a verification by its independent international consultant that its workers' accommodations meet the requirements of Act 446.

Reiterate ADD.

Walter AW CGS-CIMB Research | https://www.cgs-cimb.com 2021-01-11
SGX Stock Analyst Report ADD MAINTAIN ADD 2.930 SAME 2.930