‘HOLD’ CALL ON TOP GLOVE REMAINS
Lower ASP, softer demand likely to persist in coming months, says HLIB Research
THE expected lower average selling price (ASP) of gloves and softer demand could persist in the coming months, which may affect Top Glove Corp Bhd in the short term.
Hong Leong Investment Bank Bhd (HLIB Research) analyst Sophie Chua Siu Li said headwinds would likely remain in the short term, adding that concerted effort from industry players would be required to prevent an oversupply situation.
HLIB Research expects the ASP to decline at a lower rate monthon-month.
“Glove prices are expected to continue declining in the coming months.
“However, the (Top Glove) management expects the ASP to decline at a lower quantum of five per cent month-on-month as opposed to 10 per cent earlier, as the ASP has now fallen closer to preCovid-19 levels,” she said in a research report yesterday.
Chua said the pricing gap between the United States and European markets was also narrowing to about US$5 (versus a difference of US$10 previously).
“The nitrile glove’s ASP is around US$28 to US$30 per thousand pieces and it is expected to normalise by the middle of next year.”
She said Top Glove’s dual primary listing on the Hong Kong Stock Exchange would likely see the issuance of a maximum 793.5 million shares.
“It could raise up to RM2.27 billion, assuming an issue price of RM2.86 per share. This exercise would have a dilutive effect of 9.02 per cent on its existing shareholders.
“Overall we are ‘neutral’ on this
exercise as the positives from a larger war chest and larger pool of potential investors are balanced by the dilutive effect.”
She said lower demand for nitrile gloves had also resulted in the tapering off of raw material prices.
“The nitrile butadiene price is expected to decline by 37 per cent from September to US$1.28 per kg this month while the latex price is expected to remain largely flat in the same period.”
HLIB Research’s forecasts remain unchanged with a “hold” call and a target price of RM2.80.
“Our target represents a price earnings multiple of 11 times (at its three-year historical mean) on its financial year 2022 earnings per share of 25.5 sen.”