Tuesday 20 December 2011

Top Glove improves q-o-q

Top Glove Corp Bhd (Dec 19, RM4.48)
Maintain buy at RM4.44 and target price of RM5.26: Year-on-year earnings were 12.8% lower. Earnings before interest and tax (Ebit) margin was also lower from 8.4% to 6.8%. The lower earnings were not a surprise because the latex price averaged RM8.34 per kg compared with RM7.19 per kg in the same period the previous year.

With the slightly lower latex prices in the current quarter, quarter-on-quarter (q-o-q) Ebit has shown improvement of 45% over the previous quarter. Ebit margin has also improved to 6.8% from 4.8%.

The latex price peaked in early 2011 at RM10.90 per kg. It has since moved south and stabilised in the range of RM6.60 to RM6.80 per kg.

Despite the 1QFY12 figures coming in lower than our forecast, we are maintaining our FY12 earnings estimates at RM159.5 million as we expect earnings to improve in the next quarter given the lower latex price. Our FY13 earnings estimate is also unchanged at RM169.7 million. The company’s financial position has improved with net cash per share of 34 sen compared with the previous quarter’s 24 sen.

Target price is unchanged at RM5.26 based on an average five-year price-earnings ratio band of 20 times over CY12 earnings per share of 26.3 sen. In our previous sector update dated Nov 15, we upgraded the rubber glove sector to “overweight” and Top Glove to “buy” following the sharp decrease in latex price. Maintain “buy”. — BIMB Research, Dec 19


This article appeared in The Edge Financial Daily, December 20, 2011.




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