TOP GLOVE CORPORATION BHD (SGX:BVA)
Top Glove - First Time Seeing Red; Still SELL
- Following the continued normalisation of ASPs and an increase in costs from the global inflationary environment, Top Glove (SGX:BVA) ended the year with its first ever loss-making quarter since its listing in 2001.
- While ASPs are approaching the bottom, we think the outlook remains gloomy due to the oversupply situation, as Top Glove’s current utilisation stand at only ~45%.
- This report marks the transfer of coverage to Oong Chun Sung.
Top Glove's FY22 results below expectations.
- Top Glove's 4Q22 core loss of MYR24.7m brought FY22 core profit to MYR404m (-95% y-o-y) – below expectations at 64% of our estimates but 34% above the consensus’ estimates, mainly due to the adjustment of inventory write down amounting to MYR229m.
- On a full-year basis, sales volumes and ASPs declined by 25% and 59%, as the industry struggles with the oversupply situation.
- On the cost side, 4QFY22 saw the full impact of the higher minimum wage, and the natural gas tariff rose 10% q-o-q (60% increase in FY22). No dividend was declared by Top Glove for the quarter.
ASPs still moderating.
- In 4Q22, blended ASPs declined by 5.4% q-o-q to US$24/1000 pcs, with the q-o-q decline trend continuing to moderate. Encouragingly, raw material prices are also on a declining trend due to lower production and deferred capacity by glove makers. However, Top Glove continues to see lower demand across all regions, due to excess stockpiling by customers.
- Despite the lower sales volumes, Top Glove revealed that it raised ASPs by 5% in October to begin passing through the increased costs, at the risk of sacrificing market share.
Deferred capacity.
- In view of the low utilisation levels (~45%), Top Glove is deferring all capex for new capacity in 2023, ahead of plans to add 4bn pieces per annum in 2024 and 11bn pieces per annum in 2025.
- Instead, a FY23 budget capex of MYR470m will be utilised for ongoing constructions and refurbishments of existing facilities, enhancing in-house supply, and construction of a hostel that can accommodate 2,000 workers upon completion in Dec 2022.
Top Glove - Earnings revision and valuation.
- We cut our FY23 and FY24 revenue estimates for Top Glove by 16% and 14% to factor in lower utilisation rates and delayed capacity expansion. We cut our FY23 and FY24 earnings estimates for Top Glove by 40% and 36% in view of higher raw material costs.
- Despite the loss-making quarter, we believe Top Glove will remain profitable in FY23 as ASPs bottom out, and demand should pick up once customer inventory is depleted.
- We changed our valuation methodology for Top Glove from P/E-based to DCF. Maintain SELL, new MYR0.60 target price from MYR1.42, 16% downside. Our target price incorporates a 0% ESG premium/discount, based on Top Glove’s 3.0 score.
- See
- Key risks. Further deterioration in ASPs, deferment on capacity expansion expected raw material prices.
Oong Chun Sung
RHB Securities Research
|
https://www.rhbgroup.com/
2022-09-21
SGX Stock
Analyst Report
0.19
DOWN
0.44
