Top Glove’s 1HFY14 results came in below our and
market expectations, at 40% and 41% of the respective full-year
forecasts. We continue to anticipate a challenging environment as its
production mix is still heavily tilted towards natural rubber
(NR) gloves. Maintain NEUTRAL, with our TP adjusted lower to
MYR5.67 (from MYR6.34), following our earnings downgrade.
Below expectations. Top Glove’s 1HFY14 results were short on our and consensus expectations, making up 40% and 41% of the respective full-year forecasts. The group’s 1HFY14 revenue dipped 3.3% y-o-y to MYR1,122.3m owing to falling average selling prices (ASPs), led by lower raw material costs. Meanwhile, 1HFY14 earnings declined 14.8% y-o-y to MYR91.8m due to competitive pricing pressure in both the NR and nitrile gloves segments.
Below expectations. Top Glove’s 1HFY14 results were short on our and consensus expectations, making up 40% and 41% of the respective full-year forecasts. The group’s 1HFY14 revenue dipped 3.3% y-o-y to MYR1,122.3m owing to falling average selling prices (ASPs), led by lower raw material costs. Meanwhile, 1HFY14 earnings declined 14.8% y-o-y to MYR91.8m due to competitive pricing pressure in both the NR and nitrile gloves segments.
Weak q-o-q performance. In 2QFY14, revenue
slipped 4.5% q-o-q to MYR548.3m, mainly owing to lower ASPs, while
EBIT tumbled 17.9% q-o-q due to forex losses amounting to MYR8.3m during
the quarter. This in turn caused 2QFY14 earnings to drop 17.3% q-o-q
and 17.4% y-o-y to MYR41.6m. The decline was also partly attributed to
MYR5.4m in losses arising from its China operations during the quarter
under review.
Reducing earnings estimates. In view of mounting
pricing pressure on gloves, we cut our FY14/15F earnings
forecasts by 16.3%/19.4% to factor in lower ASP assumptions. We
believe that the higher contribution from the group’s nitrile gloves
will be somewhat offset by lower margins from NR gloves in the coming
quarters.
Maintain NEUTRAL. We reiterate our NEUTRAL call on Top
Glove, as we believe the world’s biggest glove manufacturer will
continue to face challenges as its production capacity is still
significantly skewed towards NR gloves (77:23) despite the shift
in global demand towards nitrile gloves. Following our earnings
downgrade, we adjust our TP lower to MYR5.67 (from MYR6.34).
This is based on a 17x P/E, as we roll over our valuations
to FY15 EPS, which is line with the stock’s 5-year historical
trading band.
Financial Exhibits
Financial Exhibits
SWOT Analysis
Company Profile
Top Glove Corporation is an investment holding company whose
subsidiaries’ principal activities are in the manufacturing and sale
of medical gloves.
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