KUALA LUMPUR – MIDF Research has lowered its earnings forecast for Top Glove Corp Bhd for the financial years ending Aug 31, 2022 (FY2022) and FY2023 by 4.4% and 4.2%, respectively.
The glove producer was given earnings forecasts of RM1.7 billion for FY2022 and RM1.4 billion for FY2023 due to declining rubber gloves average selling prices (ASPs).
MIDF Research said in a note today that declining prices had impacted earnings in the first quarter ended November 30, 2021 of FY2022 (Q1 FY2022) severely.
The group’s net profit in Q1 FY2022 dropped to RM185.72 million from RM2.36 billion recorded in the same quarter a year ago, while revenue fell to RM1.58 billion from RM4.76 billion previously.
The weaker performance was mainly attributed to normalising ASPs and glove demand following mass vaccine rollouts on a global scale while customers are cautious about replenishing orders. The cost of raw materials is also dropping at a much slower pace.
The research house said ASPs were expected to remain on a downward trend due to increasing vaccination around the world and rising Chinese competition.
MIDF Research is maintaining a “neutral” call on Top Glove, cutting its target price (TP) to RM2.27 from RM3.23 previously.
Similarly, Kenanga Research has also downgraded Top Glove’s net profit by 55% and 48% for FY2022 and FY2023, respectively.
Lower ASPs of US$30 from US$32 previously, a cut in volume growth to 11% from 28%, and a higher effective tax rate of 28% versus 20% before (and imputing the one-off prosperity tax) are factors impacting the group in 2022.
Kenanga said, in FY2023, ASPs are expected to fall to US$28 from US$29, while volume sales growth is projected to drop to 13% from 24%. It is lowering the TP to RM2.05 from RM3.60.
Meanwhile, AmInvestment Bank is expecting a challenging business environment for Top Glove in the immediate term as competition intensifies in a reduced-demand and higher-supply environment.
“Although its near-term outlook is tough, we believe that its long-term prospects remain bright as we anticipate Top Glove’s volume growth to return to eight to 10% annually after the recent decline in volume. Its net cash position is strong at RM1.38 billion,” it said.
The investment bank added that the ASPs’ downward trend should cause earnings to decline in Q2 FY2022, and it is maintaining a “hold” call for the group. – Bernama, December 13, 2021
