Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: MAYBANK
Top Glove Corporation Bhd
(March 8, RM4.82)
Upgrade to hold from sell at RM4.75 with revised target price RM4.55 (from RM4.70): We see limited downside to the current price level because: (i) the share price has fallen 22% since our downgrade in September 2010 and is close to our old target price (TP) of RM4.70; (ii) earnings may bottom out in 2QFY11 (expected to be flat quarter-on-quarter) and sequentially, driven by new capacities in 2HFY11; and (iii) the latex cost has stabilised and is set to fall by May after the 'wintering season'. Our discounted cash flow (DCF)-derived TP is lowered to RM4.55 (from RM4.70) after tweaking our FY11/12 forecasts (-5% to 11%). But, downside to our TP from the current level is only 4%, hence we raise Top Glove to a 'hold'.
Top Glove is scheduled to release its 2QFY11 results on March 16. We expect flattish q-o-q earnings (1QFY11: RM36 million net profit) on flattish orders as distributors withheld purchases given high latex cost and stable margins on a cost pass-on rate of 70% (similar to 1QFY11). In view of the incoming capacity in 2HFY11 (+11% or +4.5 billion pieces from the current 41.3 billion pieces), we see stronger earnings in 2HFY11.
In early-March 2011, the latex price (60% of production cost) eased somewhat (-2% from its peak in February 2011) as heavy rainfall has subsided.
Currently, rubber trees are going through the regular 'wintering season' (February-May) and production is better than during rainfall. Hence, we would deduce that latex cost has peaked and will remain stable at the current level until it falls again in May. As a result, distributors will resume buying and a rebound in sales orders will be seen for Top Glove.
We have lowered our market share assumptions for Top Glove to -2 percentage points (ppts) in FY11 and +0.4 ppts in FY12 (previously was 0 ppts in FY11 and +0.6 ppts in FY12) as we think nitrile players will take away some market share from Top Glove. Subsequently, our FY11 earnings per share is cut by 11% and another 5% for FY12.
At our new DCF-derived TP of RM4.55, Top Glove will trade at 13 times CY12 price-earnings ratio, similar to its five-year historical average of 13.5 times. ' Maybank IB Research, March 8
This article appeared in The Edge Financial Daily, March 9, 2011.
Company Name: TOP GLOVE CORPORATION BHD
Research House: MAYBANK
Top Glove Corporation Bhd
(March 8, RM4.82)
Upgrade to hold from sell at RM4.75 with revised target price RM4.55 (from RM4.70): We see limited downside to the current price level because: (i) the share price has fallen 22% since our downgrade in September 2010 and is close to our old target price (TP) of RM4.70; (ii) earnings may bottom out in 2QFY11 (expected to be flat quarter-on-quarter) and sequentially, driven by new capacities in 2HFY11; and (iii) the latex cost has stabilised and is set to fall by May after the 'wintering season'. Our discounted cash flow (DCF)-derived TP is lowered to RM4.55 (from RM4.70) after tweaking our FY11/12 forecasts (-5% to 11%). But, downside to our TP from the current level is only 4%, hence we raise Top Glove to a 'hold'.
Top Glove is scheduled to release its 2QFY11 results on March 16. We expect flattish q-o-q earnings (1QFY11: RM36 million net profit) on flattish orders as distributors withheld purchases given high latex cost and stable margins on a cost pass-on rate of 70% (similar to 1QFY11). In view of the incoming capacity in 2HFY11 (+11% or +4.5 billion pieces from the current 41.3 billion pieces), we see stronger earnings in 2HFY11.
In early-March 2011, the latex price (60% of production cost) eased somewhat (-2% from its peak in February 2011) as heavy rainfall has subsided.
Currently, rubber trees are going through the regular 'wintering season' (February-May) and production is better than during rainfall. Hence, we would deduce that latex cost has peaked and will remain stable at the current level until it falls again in May. As a result, distributors will resume buying and a rebound in sales orders will be seen for Top Glove.
We have lowered our market share assumptions for Top Glove to -2 percentage points (ppts) in FY11 and +0.4 ppts in FY12 (previously was 0 ppts in FY11 and +0.6 ppts in FY12) as we think nitrile players will take away some market share from Top Glove. Subsequently, our FY11 earnings per share is cut by 11% and another 5% for FY12.
At our new DCF-derived TP of RM4.55, Top Glove will trade at 13 times CY12 price-earnings ratio, similar to its five-year historical average of 13.5 times. ' Maybank IB Research, March 8
This article appeared in The Edge Financial Daily, March 9, 2011.
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