Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: HWANGDBS
Top Glove Corp Bhd
(June 15, RM5.26)
Maintain hold at RM5.16 with target price of RM5.30: Top Glove will release 3QFY11 results tomorrow. We expect them to be weak, given the continued high latex price coupled with a still weak US dollar during March-May. Latex prices averaged RM10 per kg in the quarter similar to 2QFY11 levels. On top of that, the US dollar has weakened another 2% against the ringgit quarter-on-quarter. Hence, demand remained flat due to high average selling prices (ASPs).
We initially expected earnings and margins to recover in 2HFY11, but given the current firm latex prices, we will only see a meaningful recovery in FY12. In addition, Top Glove will be hit by higher energy costs following the electricity tariff hikes this month.
We have revised our assumptions as follows: (i) 7% higher electricity costs; (ii) progressive 20%-45% hike in gas costs, and (iii) higher latex prices (RM8.10-RM8.80 per kg). Consequently, we cut FY11F earnings by 25% and nudged down FY12 by 1%.
Top Glove might declare lower dividend for FY11, given the need to conserve cash for expansion and working capital. As such, we lowered our dividend per share assumption to 11 sen (from 16 sen) based on 50% payout.
Maintain 'hold' and RM5.30 target price pegged to 13 times CY12 EPS. Top Glove remains a 'hold' because we believe the negative newsflow on earnings and dividends has been priced in. Key re-rating catalysts are a drop in latex prices and pickup in demand. ' HwangDBS Vickers Research, June 15
This article appeared in The Edge Financial Daily, June 16, 2011.
Company Name: TOP GLOVE CORPORATION BHD
Research House: HWANGDBS
Top Glove Corp Bhd
(June 15, RM5.26)
Maintain hold at RM5.16 with target price of RM5.30: Top Glove will release 3QFY11 results tomorrow. We expect them to be weak, given the continued high latex price coupled with a still weak US dollar during March-May. Latex prices averaged RM10 per kg in the quarter similar to 2QFY11 levels. On top of that, the US dollar has weakened another 2% against the ringgit quarter-on-quarter. Hence, demand remained flat due to high average selling prices (ASPs).
We initially expected earnings and margins to recover in 2HFY11, but given the current firm latex prices, we will only see a meaningful recovery in FY12. In addition, Top Glove will be hit by higher energy costs following the electricity tariff hikes this month.
We have revised our assumptions as follows: (i) 7% higher electricity costs; (ii) progressive 20%-45% hike in gas costs, and (iii) higher latex prices (RM8.10-RM8.80 per kg). Consequently, we cut FY11F earnings by 25% and nudged down FY12 by 1%.
Top Glove might declare lower dividend for FY11, given the need to conserve cash for expansion and working capital. As such, we lowered our dividend per share assumption to 11 sen (from 16 sen) based on 50% payout.
Maintain 'hold' and RM5.30 target price pegged to 13 times CY12 EPS. Top Glove remains a 'hold' because we believe the negative newsflow on earnings and dividends has been priced in. Key re-rating catalysts are a drop in latex prices and pickup in demand. ' HwangDBS Vickers Research, June 15
This article appeared in The Edge Financial Daily, June 16, 2011.
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