Wednesday, 14 June 2017

Top Glove

Top Glove’s revenue to be firmer in third quarter

KUCHING: Top Glove Corporation Bhd’s (Top Glove) third quarter of financial year 2017 (3QFY17) revenue is expected by analysts to be firmer year on year (y-o-y) while earnings is to range from RM80 to RM85 million.
Affin Hwang Investment Bank Bhd (AffinHwang Research) expected 3QFY17 revenue to be firmer y-o-y on higher ASP revisions, as the research firm saw competition abating and industry supply-demand dynamics being more balanced, leading to better pricing management.
“Volume growth should stay relatively tepid, as there was no significant capacity addition in the quarter,” it said.
Recent ringgit appreciation is a potential headwind, but AffinHwang Research noted the stronger ASP increase should offset the currency impact.
For 4QFY17, the research firm expected progressively higher topline with the consolidation of two small factories TopGlove acquired recently and the commissioning of a new factory (annual capacity of three billion gloves) in June 2017.
As for 3QFY17 earnings, AffinHwang Research expected it to range from RM80 million to RM85 million, which would imply 28 to 36 per cent y-o-y earnings growth.
“Sequential earnings growth momentum may moderate, largely due to the lack of additional capacity and the higher raw material prices,” it said.
That said, the research firm noted that raw-material prices have been trending lower due to the end of the wintering season and moderating China automotive sales in May 2017, which should be positive for progressive earnings growth in 4QFY17E.
The research firm also expected firmer margins ahead on higher automation, as well as an improving product mix and increased efficiency.
Despite moderating raw-material prices, the year to date (YTD) average price of RM7.04 per kilogram (kg) for natural rubber was still above Affin Hwang’s previous assumption of RM5 to RM5.50 per kg.
Hence, AffinHwang research lowered its FY17-19E earnings per share (EPS) by two to 16 per cent after lifting its raw-material assumptions to RM6 to RM6.50 per kg.
That said, the research firm maintained its strong earnings outlook for Top Glove (EPS growth of 28 per cent y-o-y in FY18E) driven by capacity expansion and a higher nitrile contribution.
“Top Glove remains our top sector pick for its growing nitrile mix, strong volume expansion and relatively compelling valuation,” the research firm said.
Despite the cuts to the research firm’s earnings, Affin Hwang raised its 12-month target price to RM6.50 per share, from RM5.80 per share previously.

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