Top Glove ends FY17 within expectations
KUCHING: Analysts are satisfied with Top Glove Corporation Bhd’s (Top Glove) performance in the financial year 2017 (FY17) as it total earnings amounted to RM332.7 million – comfortably meeting consensus full-year earnings estimates.
During the last quarter (4QFY17), the group registered revenue and earnings of RM902.4 million and RM98.6 million respectively.
These figures represented a year over year (y-o-y) and quarter over quarter (q-o-q) improvement of 25 and 50.2 per cent and 3.8 and 26.9 per cent, respectively.
According to a results review by the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research), the improvement in revenue for 4QFY17 was mainly attributed to the double digit growth in sales growth of 13 per cent y-o-y and 14 per cent q-o-q.
This is understood to have been derived from the commissioning of three new production plants, plants F30, F33 and F34 which began commissioning in early August, 2017.
Despite only being operational for a month, MIDF Research noted that Top Glove has revealed information that plants F33 and F34 have been fully commission while plant F30 is running at only 20 to 30 per cent of its capacity.
Based on these rates, the research arm is expecting F30 to be fully operational by the end of calendar year 2017 (CY17).
Meanwhile, Hong Leong Investment Bank Bhd (HLIB Research) saw that the group’s capacity expansion plans were still on track as plants F31 and F32 will come on in 2018, providing the group with an added capacity of 7.8 billion pieces per annum.
Both analysts reckoned that improvement in revenue has been affected by a 5 per cent y-o-y increase in average selling prices (ASPs) and the vacuum in sales during 3QFY17 from the sudden steep increase in raw material prices.
“This was partly due to the increase in average natural rubber and nitrile butadiene prices by 46.4 and 11.9 per cent y-o-y respectively against the last financial year ( FY16),” explained MIDF Research.
Looking forward, Top Glove is looking into vertical integration with the proposed acquisition of Eastern Press Sdn Bhd (Eastern Press) – one of the group’s major packing suppliers – for a total cash consideration of RM47.25 million.
“The profit guarantee of RM4.5 million for FY18 implies that this acquisition is valued at 10.5 fold price earnings ratio, which we deem to be earnings accretive,” asserted HLIB Research.
Current estimates of packaging costs represent circa 5 to 6 per cent of Top Gloves’ total operational costs.
All in all, both analysts anticipate for Top Glove to do well in the long term due to its exposure and resilience in the export market, and further expected increases in ASP.
However, both are not upgrading their calls of the stock as all positives of the stock has already been priced in at this juncture.
MIDF Research maintains its neutral call on the glovemaker with a higher target price (TP) of RM5.53 from its slight 2.7 per cent upgrade to its FY18 forecasts; while HLIB Research maintains its ‘Hold call with a higher TP of RM5.74 per share.