Top Glove - Maybank Research 2022-09-21: 1st Quarterly Loss Since Listing In 2001; Outlook Remains Challenging

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TOP GLOVE CORPORATION BHD (SGX:BVA)

Top Glove - 1st Quarterly Loss Since Listing In 2001; Outlook Remains Challenging

• Top Glove (SGX:BVA)’s 4QFY22 results - net loss of MYR53m - were below our/consensus estimates. Near-term outlook remains challenging due to on-going inventory depletion activities at the customers end while competition is still stiff especially from the China counterparts.
• We lower our FY23-24 earnings forecasts by 34-58%, and introduce FY25E.

Dragged by lower ASP, sales volume and higher costs

• Including MYR56m inventory write-down (due to lower ASP), Top Glove’s net loss of MYR52.6m in 4QFY22 (from MYR447m/MYR15.3m net profit in 4QFY21/ 3QFY22) brought FY22 net profit to MYR236m (-97% y-o-y; including MYR229m inventory write-down vs MYR81m in FY21), just 77%/78% of MIBG/ consensus estimates.
• We attribute Top Glove's weaker-than-expected 4QFY22 earnings to lower-than-expected utilisation rate (30-40% vs our 58% for 4QFY22). The sharp y-o-y decline in FY22 earnings was due to lower ASP (- 59% y-o-y) and sales volume (-25%) as well as higher raw material costs.

Key highlights from conference call with Top Glove

• 4QFY22 net loss was due to lower sales volume (-35% q-o-q), lower ASP (- 5.4% q-o-q to US$24/k pcs), higher operating costs as well as inventory write-down. Utilisation rate declined to around 30-40% in 4QFY22 (from 50-60% in 3QFY22).
• Top Glove is unable to fully pass on the additional costs to its customers due to stiff competition. However, to stay profitable, Top Glove has recently raised its ASP by +5% and intend to resume its pre-pandemic’s widely-used cost-plus pricing.
• Top Glove has set aside a MYR470m capex for FY23, focusing on its in-house nitrile raw latex and gamma sterilization plants as well as refurbishment of existing facilities.

Top Glove - Earnings forecast adjustments and recommendation

• We lower our FY23/24 earnings forecasts for Top Glove by 57.8%/34% after factoring in:
  1. actual FY22 results,
  2. lower utilisation rate of 55%/60% (from 70%) for FY23/24 and
  3. ASP assumption of US$21.5/k pcs (from US$22).
• We introduce our FY25 earnings forecast.
• Our target price for Top Glove is lowered to MYR0.52 (-13 sen; on an unchanged 13x CY24E PER). Maintain SELL.
• See
  • Top Glove's Share Price,
  • Top Glove's Target Price,
  • Top Glove's Analyst Reports,
  • Top Glove's Dividend History,
  • Top Glove's Announcements,
  • Top Glove's Latest News.
• As at end-Aug 22, Top Glove had MYR551m net cash or MYR0.07/sh. To preserve cash, dividend for FY22 is just 1.2sen (declared in 1QFY22, paid on 10 Jan 2022; FY22: -98% y-o-y).

Wong Wei Sum CFA Maybank Research | https://www.maybank-ke.com.sg/ 2022-09-21

SGX Stock Analyst Report SELL MAINTAIN SELL 0.16 DOWN 0.300