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Research firms lower Top Glove's target price amid lacklustre FY2022 performance

21/09/2022 12:12 PM

KUALA LUMPUR, Sept 21 (Bernama) -- Research firms have lowered their target price (TP) on Top Glove Corp Bhd following its lacklustre performance for its financial year ended Aug 31, 2022 (FY2022).

Top Glove’s net profit tumbled to RM235.97 million for FY2022 from RM7.71 billion a year ago while its revenue slumped to RM5.57 billion from RM16.36 billion previously.

CGS-CIMB said Top Glove is expected to post a 90 per cent year-on-year (y-o-y) dip in core net profit heading into FY2023, assuming average selling prices (ASPs) of US$19 per 1,000 pieces of gloves (-28.5 per cent y-o-y) and utilisation rate of 50 per cent.

“We expect the supply glut in the global glove sector to only dissipate towards the second half of 2023 (H2 FY2023).

“While the group intends to raise its ASP by five per cent in October 2022 to pass on cost hikes, this is likely to be difficult in the near term given the current operating environment whereby industry utilisation rate remained low at 40 to 45 per cent, while the ASP currently stands at US$18-20 per 1,000 pieces,” it said.

CGS-CIMB, therefore, maintained its reduced call on Top Glove but lowered its TP by 50 sen to account for lower-than-expected sales volume and weaker ASP.

On another note, MIDF Research downgraded Top Glove to “sell” from its “neutral” call previously with a revised TP of 54 sen from RM1.01.

The research house noted that Top Glove’s poor performance was attributed to several factors, including lower ASPs, reduced sales volume, increased natural gas tariff, the full effects of the increased minimum wage, as well as higher packaging materials and chemicals costs.

Currently, the industry’s average utilisation rate is below 50 per cent, said MIDF Research.

In view of the stabilising prices, the group increased its ASP by five per cent for October 2022 to pass on the cost.

“We believe the group has limited capacity to completely pass on the cost going forward by increasing the ASP since the customer can simply switch to other glovemakers on the back of the supply-demand mismatches and intense price competition from Chinese and Thai glovemakers.

“The demand-supply dynamics are anticipated to continue in the near term as more countries enter endemic phases, which weaken demand,” it shared.

Meanwhile, Hong Leong Investment Bank also reiterated its “sell” stance on Top Glove and subsequently lowered its TP to 54 sen from 83 sen, as it considers that the group is not entirely out of the woods yet, given the persistent demand-supply imbalance.

“We expect utilisation rates to remain low in the coming months, as glove buyers have yet to fully deplete their inventories.

“Any potential price adjustments in the near future are also expected to be marginal, mainly to share part of the higher costs, rather than a positive signal of improving operating environment,” it said.

The bank also said it has trimmed Top Glove’s core profit after tax and minority interest (PATAMI) projections for FY2023 to FY2024 by 18 to 52 per cent, as it lowered the utilisation rates assumption for the period to 55 per cent/75 per cent to reflect the industry-wide low run rates.

At 11.39 am, Top Glove lost 4.5 sen to 66 sen, with 3.52 million shares traded.


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