TOP GLOVE BHD

Target price: RM12.90

MAYBANK IB Research has maintained its earnings forecast for Top Glove and expects a stronger fourth quarter (Q4’18) for the glovemaker on the back of the recent strengthening of the US dollar against the ringgit.

The research house said the group’s stronger Q3’18 results had come in within expecta- tions, driven by strong demand growth from the emerging markets.

Top Glove saw its quarterly revenue cross the RM1bil mark for the first time in Q3’18.

The group’s sales revenue grow 26.6% to RM1.1bil from RM869.64mil in the corresponding period last year due to strong demand growth.

Its net profit for the period also grew 51.3% to RM117.57mil.

Maybank IB Research maintained its Buy call and target price of RM12.90 on the counter. The research house noted that the group’s 9MFY18 sales volume jumped 23% year-onyear, excluding Aspion.

It said the group could sustain this as the demand was driven by increasing awareness in the emerging markets.

“Key downside risk to our earnings forecasts lies in Aspion’s earnings delivery.

“To recap, there is a profit guarantee of RM81mil for FY10/18 but the latest earnings contribution from Aspion suggest a potential shortfall of about RM40mil.

“However, Top Glove believes it can improve Aspion’s earnings performance by tackling the procurement and sales distribution from July 2018 onwards,” it said.

Top Glove completed the RM1.37bil acquisition of Aspion in April to emerge as the world’s largest surgical glove manufacturer, further solidifying its leadership position as the world’s largest manufacturer of gloves.

The research house said changes in lenient regulatory requirements in developing markets would be an upside for the group as it could accelerate global glove demand growth.

A sharp fall in rubber prices and substantial rise in the strength of the US dollar against the ringgit are among other swing factors.