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Top Glove’s 2QFY20 core PATMI of RM123.6m (+14.9% QoQ, +59.7% YoY) brought 1HFY20 sum to RM231.3m (+10.1% YoY) after removing forex loss of RM4.2m. The results came in within expectations. 2QFY20 earnings improved (+14.9% QoQ) thanks to stronger sales volume (+2% QoQ) especially driven by natural rubber glove segment (+11% QoQ). We maintain our forecasts pending analysts’ conference call briefing next week. We maintain BUY with unchanged TP of RM6.76, based on FY20 earnings pegged to PE multiple 35x.

Within expectations. 2QFY20 core PATMI of RM123.6m (+14.9% QoQ, +59.7% YoY) brought 1HFY20 core PATMI to RM231.3m (+10.1% YoY) after removing forex loss of RM4.2m. The results came within ours but above consensus expectations, at 48.3% and 54% respectively. No dividends were declared.

QoQ. Revenue increased to RM1.23bn (+1.7%) on the back of steady growth in sales volume (+2%). This was especially contributed by the increase from the natural rubber glove segment (+11%) due to recovered market share through aggressive marketing strategies and increased in production utilisation (86% vs. 1QFY20: 84%). On the other hand, sales volume from nitrile gloves segment fell by 4% due to stronger demand previously from US market due to flu season. Overall ASP remained flattish. EBITDA margin improved by 0.4 ppts to 15.8% due to mixed prices of raw materials; higher NR prices (+5.8% to RM4.37/kg) and lower NBR prices (-5.3% to USD1.00/kg). Effective tax rate remained at 11%, subsequently, core PATMI improved to RM123.6m (+14.9%, from RM77.4m)

YoY. Revenue improved (+6%) due to the increase in sales volume (+2%). Particularly higher sales volume was achieved from nitrile glove segment (+14%), and surgical glove segment (+18%), whereas sales volume for natural rubber gloves were softer (-6%). ASP improved (+5%) due to higher selling prices from latex, vinyl and surgical gloves. EBITDA margin remain steady (+0.1 ppts) on the back of mixed raw materials prices; higher NR prices (+19% to RM4.37/kg) and lower NBR prices (-8.3% to USD1.00/kg). Lower tax expense of RM14.4m (-24%, from 2QFY19: RM18.8m) with lower effective tax rate of 11% (vs. 2QFY19: 15%) was due to tax incentives from its ongoing expansion and recognition of deferred tax assets. All in, core PATMI increased (+59.7%) to RM123.6m (from RM77.4m) due to EIs and tax.

YTD. Revenue increased to RM2.44bn (+0.7%) attributed to higher volumes (+0.6% YoY). EBITDA grew by 0.7%; with steady margin at 15.6% on the back of greater operational efficiencies. Core PATMI improved by 10.1% to RM231.3m, due to above mentioned factors (stronger sales volume and lower tax; 11% vs 1HFY19: 18%).

Capacity expansion. Top Glove currently operates at 90% capacity, with 711 lines producing 73.4bn pieces of gloves per year. In 2020 it will add c.8.2bn pieces in capacity bringing total installed capacity to c.81.6bn pieces (+16.4% YoY) with 781 lines. Bulk of the capacity is set to come in the second half of the year. Furthermore in 2021, Top Glove will be adding c.9.5bn pieces more in capacity (+11.6%).

Outlook. We expect stronger 2HFY20 in view of the ongoing outbreak of Covid-19. We understand Top Glove received strong orders from Asian countries in the beginning of the outbreak and now Western countries have too increased orders.

Forecast. Maintain our forecasts pending analyst conference call briefing next week.

Maintain BUY, TP RM6.76. We maintain BUY with unchanged TP of RM6.76. Our TP is based on FY20 earnings pegged to PE multiple of 35x. Top Glove is a good hedge against the broader market negatives from Covid-19 and weak ringgit.

Source: Hong Leong Investment Bank Research - 20 Mar 2020

Top Glove’s 2QFY20 core PATMI of RM123.6m (+14.9% QoQ, +59.7% YoY) brought 1HFY20 sum to RM231.3m (+10.1% YoY) after removing forex loss of RM4.2m. The results came in within expectations. 2QFY20 earnings improved (+14.9% QoQ) thanks to stronger sales volume (+2% QoQ) especially driven by natural rubber glove segment (+11% QoQ). We maintain our forecasts pending analysts’ conference call briefing next week. We maintain BUY with unchanged TP of RM6.76, based on FY20 earnings pegged to PE multiple 35x.

Within expectations. 2QFY20 core PATMI of RM123.6m (+14.9% QoQ, +59.7% YoY) brought 1HFY20 core PATMI to RM231.3m (+10.1% YoY) after removing forex loss of RM4.2m. The results came within ours but above consensus expectations, at 48.3% and 54% respectively. No dividends were declared.

QoQ. Revenue increased to RM1.23bn (+1.7%) on the back of steady growth in sales volume (+2%). This was especially contributed by the increase from the natural rubber glove segment (+11%) due to recovered market share through aggressive marketing strategies and increased in production utilisation (86% vs. 1QFY20: 84%). On the other hand, sales volume from nitrile gloves segment fell by 4% due to stronger demand previously from US market due to flu season. Overall ASP remained flattish. EBITDA margin improved by 0.4 ppts to 15.8% due to mixed prices of raw materials; higher NR prices (+5.8% to RM4.37/kg) and lower NBR prices (-5.3% to USD1.00/kg). Effective tax rate remained at 11%, subsequently, core PATMI improved to RM123.6m (+14.9%, from RM77.4m)

YoY. Revenue improved (+6%) due to the increase in sales volume (+2%). Particularly higher sales volume was achieved from nitrile glove segment (+14%), and surgical glove segment (+18%), whereas sales volume for natural rubber gloves were softer (-6%). ASP improved (+5%) due to higher selling prices from latex, vinyl and surgical gloves. EBITDA margin remain steady (+0.1 ppts) on the back of mixed raw materials prices; higher NR prices (+19% to RM4.37/kg) and lower NBR prices (-8.3% to USD1.00/kg). Lower tax expense of RM14.4m (-24%, from 2QFY19: RM18.8m) with lower effective tax rate of 11% (vs. 2QFY19: 15%) was due to tax incentives from its ongoing expansion and recognition of deferred tax assets. All in, core PATMI increased (+59.7%) to RM123.6m (from RM77.4m) due to EIs and tax.

YTD. Revenue increased to RM2.44bn (+0.7%) attributed to higher volumes (+0.6% YoY). EBITDA grew by 0.7%; with steady margin at 15.6% on the back of greater operational efficiencies. Core PATMI improved by 10.1% to RM231.3m, due to above mentioned factors (stronger sales volume and lower tax; 11% vs 1HFY19: 18%).

Capacity expansion. Top Glove currently operates at 90% capacity, with 711 lines producing 73.4bn pieces of gloves per year. In 2020 it will add c.8.2bn pieces in capacity bringing total installed capacity to c.81.6bn pieces (+16.4% YoY) with 781 lines. Bulk of the capacity is set to come in the second half of the year. Furthermore in 2021, Top Glove will be adding c.9.5bn pieces more in capacity (+11.6%).

Outlook. We expect stronger 2HFY20 in view of the ongoing outbreak of Covid-19. We understand Top Glove received strong orders from Asian countries in the beginning of the outbreak and now Western countries have too increased orders.

Forecast. Maintain our forecasts pending analyst conference call briefing next week.

Maintain BUY, TP RM6.76. We maintain BUY with unchanged TP of RM6.76. Our TP is based on FY20 earnings pegged to PE multiple of 35x. Top Glove is a good hedge against the broader market negatives from Covid-19 and weak ringgit.

Source: Hong Leong Investment Bank Research - 20 Mar 2020
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