Top Glove - RHB Invest 2022-09-21: First Time Seeing Red; Still SELL


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.

Oong Chun Sung RHB Securities Research | https://www.rhbgroup.com/ 2022-09-21
SGX Stock Analyst Report SELL MAINTAIN SELL 0.19 DOWN 0.44