RHB Investment projects Top Glove's earnings at RM9.46 bln in 2021

“However, we maintain 2023 financial year (FY) forecast earnings of RM4.49 billion, assuming an unchanged long-term ASP of US$37.00 per 1,000 pieces,” RHB Investment Bank’s Analyst Alan Lim said.

“We believe that the long-term ASP should be at the breakeven level at which inefficient new entrants should be operating. We expect earnings to see a significant jump in FY 2021 but decline in FY 2022 and FY 2023. Earnings growth should resume from FY 2024 due to volume growth with flat ASP,” he said in a research note today.

Top Glove’s net profit soared 417 per cent year-on-year in FY2020 to RM1.86 billion, while revenue jumped to RM7.23 billion from RM4.8 billion in FY2019 as demand for rubber gloves spiked amidst the COVID-19 pandemic.

For Q4 2020, net profit stood at RM1.29 billion compared with RM74.16 million in Q4 2019, while revenue was RM3.1 billion versus RM1.18 billion previously.

In making the announcement yesterday, Top Glove said FY2020’s financial results were “an unsurpassed performance in a year like no other, with more upside in glove demand expected”, adding that the group is also looking forward to fresh highs in FY2021.

MIDF Research said the rubber glove manufacturer’s product mix has enabled it to fulfil different requirements from its various customers.

It said due to the limited supply of nitrile butadiene (NBR) and long lead time for nitrile gloves (nitrile gloves spot order had been fully taken up for the next three months), some customers have decided to switch to powder-free natural rubber gloves, as well as thermoplastic extruded (TPE) gloves.

The discount between natural rubber gloves and nitrile gloves are expected to narrow going forward should more customers choose to buy natural rubber gloves.

“On the other hand, the prices of natural rubber have remained fairly stable. Its vinyl glove segment, which is mainly catered for China’s market, has also seen a huge increase in ASP. Production activities are going well at its Vietnam plant, with new production lines coming in monthly,” it said.

MIDF also believes Top Glove’s wide geographical presence enables it to sell to various markets as the number of active cases globally may experience different urgency in demand along the way.

It said high cash level bodes well for expansion plan and brings down financial costs. The company has utilised the deposits from orders to fully pay off its syndicated loans amounting to RM654 million. It has also converted 87 per cent of its convertible bonds of RM710 million to ordinary shares.

Its net cash of RM2.3 billion as of end-Aug enables it to fund its expansion plans and for the dividend payout. Out of the cash pile, it has earmarked RM1.9 billion for capital expenditure, which includes 13 double former lines and three single former lines for calendar year (CY) 2020 and 56 double former lines in CY2021.

Both of which will add another 19 billion pieces of gloves to its capacity.

Following the upbeat outlook, RHB Investment and MIDF both made a “Buy Call” for Top Glove.

However, despite making a “buy call” RHB Investment said it has lowered its target price for Top Glove to RM9.50 as it reduced the long-term terminal growth to one per cent from three per cent previously.

“We believe that the higher-than-expected hike in ASP will encourage new entrants into the gloves sector, hence, the long-term growth assumption has been lowered for Top Glove.”

MIDF on the other hand has increased its target price to RM9.63 from RM9.31.

“We think the premium is justified for its leading position, market share and business upcycle. We think that demand for gloves is likely to remain strong in the coming quarters due to an unabated number of active cases and higher hygiene awareness.

“We also like Top Glove for its product and geographical diversification, which allows it to mitigate any potential business risks in any particular market or product segment,” it added.

At 9.18 am, Top Glove rose 26 sen to RM8.05 with a total of 18.55 million shares traded.