Top Glove to see flattish final quarter performance in 2016
KUCHING: Top Glove Corporation Bhd (Top Glove) is expected to see a flat fourth quarter of the financial year 2016 ( 4QFY16), despite the increase in average selling price (ASP) in terms of US dollar.
In a report, the research arm of Affin Hwang Investment Bank Bhd ( Affi n Hwang) noted that core net profit (CNP) could be flat quarter-on-quarter (q-o-q) at RM60 million to RM70 million, largely due to tepid sales volume growth and higher production costs.
“Despite US dollar ASP increases throughout the quarter, we expect the overall top line to stay flattish largely due to minimal capacity additions and lower earning days, which dragged down sales volume growth.
“Overall margins could trend lower on higher raw material prices and the implementation of the minimum wage, leading to higher production costs.
“The 4QFY16 CNP could come in at RM60 million to RM70 million, bringing FY16 total CNP to RM355 million to RM365 million, which means it would undershoot our forecast of RM372 millin,” it opined.
Despite US dollar ASP increases throughout the quarter, we expect the overall top line to stay flattish largely due to minimal capacity additions and lower earning days, which dragged down sales volume growth. Affin Hwang
While the research team expected a flattish quarter ahead, it remained positive on Top Glove’s expansion moves.
It said, “We are positive on Top Glove’s continued expansion into Thailand after our recent visit to Factory 7 in Songkhla Province.
“Currently Top Glove has two glove factories and two latex processing plants in Thailand. Expansion into Thailand is strategic and logical, given its eight- year tax break as well as favourable labour supply conditions.
“Southern Thailand is also populated with rubber tree plantations, making it ideal for sourcing raw materials and cutting lead times.”
Affin Hwang is also positively surprised by Top Glove’s ongoing revamp work status for Factory 7.
“Half of the production lines have been taken offline for a major upgrade and maintenance while the remaining half is running on maximum utilisation.
“The expected stepped- up productivity would be impressive, with at least 1/3 higher output and 1/5 more savings in labour costs postupgrade.
“Extrapolating the same against the high proportion of aging plants in its mix, further automation and operational enhancement could provide underlying margin expansion,” it explained.
Overall, the research team maintained a ‘buy’ call on the stock. It said, “We like Top Glove for its undemanding valuations and ongoing efficiency improvement initiatives. A balanced product mix could provide a reprieve against pricing pressure in the nitrile segment.”