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HLIB maintains ‘buy’ call, target price on TOPGLOV (7113) TOP GLOVE CORP BHD amid expectations of stronger q-o-q 3Q results

KUALA LUMPUR (March 22): Hong Leong Investment Bank (HLIB) Research has maintained its “buy” rating on Top Glove Corp Bhd with an unchanged target price of RM8.14 as it expects the group to post stronger quarter-on-quarter (q-o-q) results in the three months ending May 31, 2021 (3QFY21).

In a note today, HLIB Research said the world’s largest glove manufacturer’s near-term outlook remains positive following its recent meeting with the company’s management.

The research house anticipated a stronger set of results despite an expected decline in the average selling prices (ASPs) of nitrile gloves and powder-free natural rubber gloves by 3% to 5% in April and May, from levels seen in February and March.

This is because the lower nitrile gloves ASP will be offset by the higher ASP of powdered natural rubber gloves, which is expected to rise by 3% to 5% going forward, as the latter is mainly sold to emerging markets which have not rolled out their vaccination programmes as quickly as developed nations.

Nonetheless, the company said the nitrile lead time remains strong as current lead time for delivery stood at 170 days, higher than the pre-pandemic levels of 30 to 40 days — but below its peak of over 500 days.

HLIB Research also said Top Glove will post better 3QFY21 results as its 2QFY21 production volumes were affected by the enhanced movement control order (EMCO) imposed on its factories in Klang following the Covid-19 outbreak among its workers.

The research house learned that in the absence of EMCO impact on productions, the company's 2QFY21 core profit after tax and minority interest (PATAMI) would have been RM500 million higher than the RM2.9 billion posted.

On the US customs and border protection (CBP) front, Top Glove said it has recently been audited and expects the Withhold Release Order to be revoked soon, which would result in increased sales to the US.

It noted that sales volume to the US market has only grown by 6% in the first half of FY21 (1HFY21) year-on-year (y-o-y) as compared to Western Europe, which leapt 62% y-o-y at the same period.

To recap, Top Glove’s net profit for 2QFY21 rose 20.76% q-o-q to RM2.87 billion from RM2.38 billion.

Revenue grew by 12.74% to a record RM5.37 billion from RM4.76 billion.

On a y-o-y basis, its net profit leapt 24 times from RM115.68 million, while revenue expanded more than four times from RM1.23 billion in 2QFY20.

It has declared a dividend payment of 25.2 sen per share, bringing the total dividend declared for 1HFY21 to 41.7 sen per share, representing a 253% increase from the full-year dividend for FY20 of 11.8 sen per share.

At the time of writing, Top Glove's share price rose seven sen or 1.29% to RM5.48, bringing it a market capitalisation of RM44.96 billion. There were 18.32 million shares transacted so far.

Nonetheless, its share price has fallen 22% from its recent peak of RM7.05 on Feb 2, 2021.


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