Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: CIMB
Top Glove Corp Bhd
(June 25, RM13.38)
Reiterate outperform at RM13 with unchanged target price of RM17.90: Despite the 9%quarter-on-quarter (q-o-q) earnings slippage due to margin erosion stemming from a time lag in passing on the latex price rise, the group was generally satisfied with its performance for 3QFY8/10.
Sales volume was 1% higher than the previous quarter even though some customers held back orders in hopes of a further fall in latex prices after the rubber wintering season ends.
The US market currently makes up about 28% of Top Glove's sales. The management said that demand from the US has been positive and it expects a further improvement, driven by the healthcare reform and improving economy in that country.
The group also commented that the usage of cleanroom and safety gloves has increased as environmental groups and oil & gas workers have started cleaning up the oil spill in the Gulf of Mexico.
For other markets such as Europe and Latin America, demand has generally been slow over the past few months as customers are waiting for latex prices to come off due to the rubber wintering season. However, Top Glove started seeing some improvement in orders this month despite latex prices holding up above RM7 per kg.
Given that the rubber wintering season has ended and the El Nino effect has eased, global rubber supply had improved in recent weeks. In light of this, Top Glove holds the view that the current latex price of RM7.06 per kg may not hold any longer and is bound to come off soon.
The management continues to believe that global rubber glove demand will show 8%-10% annual growth, backed by the tightening of global healthcare regulations, rising hygiene awareness and new demand from non-medical sectors in developed countries such as the food industry.
It estimates that rubber glove demand will be at about 150 billion pieces this year. As a result, the company is holding firm to its expansion plans which include the progressive addition of 88 lines by May 11. This could raise capacity by 25% from the current 33 billion pieces per annum to 41.3 billion pieces per annum.
Top Glove has RM273 million (90 sen per share) net cash on hand which could be used to finance further expansion, payment of higher dividends and possibly the acquisition of small rubber glove companies around the region particularly Thailand, Indonesia and Malaysia. The management confirms that it is in talks with potential parties and expects deals to be finalised within a year.
For the China market, it expects operations to remain profitable despite rising competition from local players in the vinyl glove market. The company reiterates its target of 30% global market share by end-2010 compared to 23% currently.
We continue to like Top Glove for its demand as the market leader and its focus as a volume player.
Our valuation basis remains a 10% premium over our target market P/E of 15 times, giving us an unchanged market price of RM17.90. ' CIMB Research, June 25
This article appeared in The Edge Financial Daily, June 28, 2010.
Company Name: TOP GLOVE CORPORATION BHD
Research House: CIMB
Top Glove Corp Bhd
(June 25, RM13.38)
Reiterate outperform at RM13 with unchanged target price of RM17.90: Despite the 9%quarter-on-quarter (q-o-q) earnings slippage due to margin erosion stemming from a time lag in passing on the latex price rise, the group was generally satisfied with its performance for 3QFY8/10.
Sales volume was 1% higher than the previous quarter even though some customers held back orders in hopes of a further fall in latex prices after the rubber wintering season ends.
The US market currently makes up about 28% of Top Glove's sales. The management said that demand from the US has been positive and it expects a further improvement, driven by the healthcare reform and improving economy in that country.
The group also commented that the usage of cleanroom and safety gloves has increased as environmental groups and oil & gas workers have started cleaning up the oil spill in the Gulf of Mexico.
For other markets such as Europe and Latin America, demand has generally been slow over the past few months as customers are waiting for latex prices to come off due to the rubber wintering season. However, Top Glove started seeing some improvement in orders this month despite latex prices holding up above RM7 per kg.
Given that the rubber wintering season has ended and the El Nino effect has eased, global rubber supply had improved in recent weeks. In light of this, Top Glove holds the view that the current latex price of RM7.06 per kg may not hold any longer and is bound to come off soon.
The management continues to believe that global rubber glove demand will show 8%-10% annual growth, backed by the tightening of global healthcare regulations, rising hygiene awareness and new demand from non-medical sectors in developed countries such as the food industry.
It estimates that rubber glove demand will be at about 150 billion pieces this year. As a result, the company is holding firm to its expansion plans which include the progressive addition of 88 lines by May 11. This could raise capacity by 25% from the current 33 billion pieces per annum to 41.3 billion pieces per annum.
Top Glove has RM273 million (90 sen per share) net cash on hand which could be used to finance further expansion, payment of higher dividends and possibly the acquisition of small rubber glove companies around the region particularly Thailand, Indonesia and Malaysia. The management confirms that it is in talks with potential parties and expects deals to be finalised within a year.
For the China market, it expects operations to remain profitable despite rising competition from local players in the vinyl glove market. The company reiterates its target of 30% global market share by end-2010 compared to 23% currently.
We continue to like Top Glove for its demand as the market leader and its focus as a volume player.
Our valuation basis remains a 10% premium over our target market P/E of 15 times, giving us an unchanged market price of RM17.90. ' CIMB Research, June 25
This article appeared in The Edge Financial Daily, June 28, 2010.
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