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TOPGLOV (7113): TOP GLOVE CORP BHD shares lose footing, dip below RM3 mark for first time since May last year as earnings miss expectations

KUALA LUMPUR (Sept 20): Top Glove Corp Bhd shares lost their footing this morning, falling as much as 14 sen or 4.58% to RM2.92 — the lowest level since May last year — following target price (TP) cuts and ratings downgrade against a backdrop of earnings that missed expectations.

Analysts covering the counter have downgraded their earnings forecasts for Top Glove as they expect glove average selling prices (ASPs) to drop further, affected by factors such as normalised demand due to increasing vaccination rollout around the globe and rising Chinese competition which will weigh on the group’s ASP.  

CGS-CIMB Research has downgraded its TP for the stock to RM3 from RM3.48 previously, and said Top Glove’s final core net profit of RM7.8 billion for the full financial year ended Aug 31, 2021 (FY21) missed estimates due to lower-than-expected sales volume, owing to lower production output during the enhanced and full movement control orders (MCOs).

“Going forward, we expect Top Glove to continue posting weaker quarter-on-quarter (q-o-q) results, due to weaker ASPs from incoming new global glove supply and slower customer buying patterns. According to Top Glove, its Sept 21 ASP (per 1,000 pieces) is US$40-45 for nitrile (4QFY21: US$58) and US$35-40 for natural latex (4QFY21: US$42). It expects ASPs to continue to decline by 8-10% monthly up until Jan 22,” it said.  

In light of the downtrend for glove ASP, the research firm cuts its earnings per share for the glove maker by 22.6% in FY22, 18.2% in FY23 and 7.7% in FY24. It had projected the ASP for gloves per 1,000 pieces to drop to US$32 in FY22, US$29 in FY23 and US$28 in FY24.  

Despite weaker earnings prospects, the research house has maintained its "hold" call for Top Glove as it opined that the group’s current valuations will be supported by inelastic global glove demand, its position as the largest global glove maker, and its strong fundamentals (total cash and investment securities of RM2 billion at end-4QFY21).

Similarly, AmInvestment Bank Research — which has lowered its fair value to RM3.10 from RM3.77 previously — has also reduced its FY22 and FY23 earnings estimates by 34% and 10% to reach RM1.86 billion and RM1.37 billion respectively, due to a reduction in ASP assumptions. Its assumptions for blended gloves ASP are US$26.20 for FY22 and US$23.90 for FY23, down from a projection of US$30.50 and US$25.60 previously.

AmInvestment Bank Research expects the downtrend for glove ASP should continue in 1QFY22 but will stabilise in 2QFY22.

On a positive note, the research firm said it expects the group’s sales volume to improve in 1QFY22 as the company has been allowed to export its gloves to the US effective Sept 10.

Nonetheless, it has maintained its “hold” recommendation for Top Glove to reflect its improved environmental, social and governance (ESG) outlook and strong net cash position of RM2.05 billion or 26 sen per share.

Other research firms that have downgraded their calls include Maybank Kim Eng (downgraded its call to “sell” from “hold” and lowered TP by 44% to RM1.68), Kenanga Research (lowered TP to RM3.60 from RM3.06 previously while maintaining its “outperform” call) and MIDF Research (reduced TP to RM3.23 from RM4.55 previously, while maintaining its “neutral” call).

Last Friday, Top Glove said its net profit slumped 70.14% quarter-on-quarter (q-o-q) to RM607.95 million in the fourth quarter ended Aug 31, 2021 (4QFY21), compared with RM2.04 billion in the immediate preceding quarter. Revenue almost halved to RM2.12 billion in 4QFY21 from RM4.16 billion in 3QFY21.

Both earnings and top line also dropped on a yearly basis. Its net profit plunged 48.37% year-on-year (y-o-y) from RM1.18 billion in 4QFY20, while revenue also declined 31.95% y-o-y from RM3.11 billion previously.

Its cumulative net profit for the full FY21 surged a whopping 349.1% to RM7.87 billion, from RM1.75 billion a year ago. Revenue more than doubled to RM16.41 billion compared with RM7.24 billion previously.


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