TOPGLOV (7113) : Top Glove Corporation - Improving its competitiveness
Target RM4.48 (Stock Rating: HOLD)
During its 1QFY15 analyst briefing today, Top Glove stated that it will continue to expand to achieve its market share target of 30% by 2020. To combat inflationary and pricing pressure, it will continue to invest to improve plant efficiency. We maintain our FY15-17 net profit forecasts but raise our target price as we peg it at a 15% discount (or 14x CY16 P/E) to Hartalega instead of 20% previously – we think that the worst is over for Top Glove and the company is now back on track to narrow its competitiveness gap with its peers. We also believe that it will benefit from the stronger US$ more than its peers due to the fact that its bulk natural rubber glove sales face lesser competition. We maintain our Hold call on the stock. Within the rubber glove sector, we prefer Kossan which we believe will be the least impacted by the pricing pressure.
What Happened
Top Glove’s 1QFY15 results briefing today was attended by around 40 analysts and fund managers. The briefing was hosted by Tan Sri Lim Wee Chai (Chairman) and Lim Cheong Guan (Executive Director). During the briefing, management presented Top Glove’s 1QFY15 results and outlook for FY15. The discussion focused on management's plans to increase efficiency in order to offset the inflationary pressure from subsidy cuts and more intense competition going forward.
What We Think
There were no surprises during the briefing. While the company is still cautious on inflationary pressure and stiffer competition in the nitrile segment, management seems more optimistic now compared to the last briefing. This is not surprising given that the company has been building new plants, installing new machines and revamping its old machines in the past one year, all of which allowed Top Glove to maintain its margins and secure more new orders from big customers. Aside from this, its China operations have also turned around while the group’s profit is now less affected by forex fluctuations as it has shortened its hedging policy. We believe that the worst is over for Top Glove and the company is now on track to narrow its competitiveness gap with its peers.
What You Should Do
We recommend that investors continue to hold Top Glove shares. We expect the group to return to positive earnings growth in FY15, though we think that its EPS growth will be lower than its peers.
Source: CIMB Daybreak - 09 January 2015
Target RM4.48 (Stock Rating: HOLD)
During its 1QFY15 analyst briefing today, Top Glove stated that it will continue to expand to achieve its market share target of 30% by 2020. To combat inflationary and pricing pressure, it will continue to invest to improve plant efficiency. We maintain our FY15-17 net profit forecasts but raise our target price as we peg it at a 15% discount (or 14x CY16 P/E) to Hartalega instead of 20% previously – we think that the worst is over for Top Glove and the company is now back on track to narrow its competitiveness gap with its peers. We also believe that it will benefit from the stronger US$ more than its peers due to the fact that its bulk natural rubber glove sales face lesser competition. We maintain our Hold call on the stock. Within the rubber glove sector, we prefer Kossan which we believe will be the least impacted by the pricing pressure.
What Happened
Top Glove’s 1QFY15 results briefing today was attended by around 40 analysts and fund managers. The briefing was hosted by Tan Sri Lim Wee Chai (Chairman) and Lim Cheong Guan (Executive Director). During the briefing, management presented Top Glove’s 1QFY15 results and outlook for FY15. The discussion focused on management's plans to increase efficiency in order to offset the inflationary pressure from subsidy cuts and more intense competition going forward.
What We Think
There were no surprises during the briefing. While the company is still cautious on inflationary pressure and stiffer competition in the nitrile segment, management seems more optimistic now compared to the last briefing. This is not surprising given that the company has been building new plants, installing new machines and revamping its old machines in the past one year, all of which allowed Top Glove to maintain its margins and secure more new orders from big customers. Aside from this, its China operations have also turned around while the group’s profit is now less affected by forex fluctuations as it has shortened its hedging policy. We believe that the worst is over for Top Glove and the company is now on track to narrow its competitiveness gap with its peers.
What You Should Do
We recommend that investors continue to hold Top Glove shares. We expect the group to return to positive earnings growth in FY15, though we think that its EPS growth will be lower than its peers.
Source: CIMB Daybreak - 09 January 2015
