Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Top Glove Corp Bhd
(Oct 12, RM4.20)
Maintain hold at RM4.07 with target price of RM4.05: As expected, revenue and net profit were flat in the quarter, and operating profit margin remained weak at 6.5% (same as 3QFY11). Operating margin for FY11 was 7%, a record low since 2002, mainly due to volatile latex prices, weaker US dollar against the ringgit and lower cost pass through to customers. Nitrile gloves now contribute 14% of total sales (against 13% in 3QFY11). Capacity utilisation averaged 70%. The balance sheet remained strong with RM146 million net cash or 23.7 sen per share. Top Glove declared a single-tier final dividend per share of six sen in the quarter, taking FY11 total DPS to 11 sen or 60% payout, higher than our 50% assumption.
About 70% of Top Glove's latex supply comes from southern Thailand. Adverse weather in Thailand will affect tapping, but we understand the southern provinces have been spared by floods so far. Latex prices have fallen approximately 5% to RM8.20 per kg (from RM8.60 in September), but we think prices will be supported by adjustments to output. Based on our sensitivity analysis, each 1% change in latex price would change net profit by about 4%. We maintain our assumptions for natural rubber latex prices of RM8.10 to RM8.80 per kg.
Our target price is pegged to 13 times CY12 earnings per share, similar to its 10-year historical mean. We retain our 'hold' rating because volatile latex prices will continue to be a dampener on an efficient cost pass through mechanism. The 60% dividend payout in FY11 may not be recurring. Top Glove is maintaining its dividend payout policy at a minimum of 40%. ' HwangDBS Vickers Research, Oct 12
This article appeared in The Edge Financial Daily, Ocotber 13, 2011.
Company Name: TOP GLOVE CORPORATION BHD
| Research House: HWANGDBS | Price Call: HOLD | Target Price: 4.05 |
Top Glove Corp Bhd
(Oct 12, RM4.20)
Maintain hold at RM4.07 with target price of RM4.05: As expected, revenue and net profit were flat in the quarter, and operating profit margin remained weak at 6.5% (same as 3QFY11). Operating margin for FY11 was 7%, a record low since 2002, mainly due to volatile latex prices, weaker US dollar against the ringgit and lower cost pass through to customers. Nitrile gloves now contribute 14% of total sales (against 13% in 3QFY11). Capacity utilisation averaged 70%. The balance sheet remained strong with RM146 million net cash or 23.7 sen per share. Top Glove declared a single-tier final dividend per share of six sen in the quarter, taking FY11 total DPS to 11 sen or 60% payout, higher than our 50% assumption.
About 70% of Top Glove's latex supply comes from southern Thailand. Adverse weather in Thailand will affect tapping, but we understand the southern provinces have been spared by floods so far. Latex prices have fallen approximately 5% to RM8.20 per kg (from RM8.60 in September), but we think prices will be supported by adjustments to output. Based on our sensitivity analysis, each 1% change in latex price would change net profit by about 4%. We maintain our assumptions for natural rubber latex prices of RM8.10 to RM8.80 per kg.
Our target price is pegged to 13 times CY12 earnings per share, similar to its 10-year historical mean. We retain our 'hold' rating because volatile latex prices will continue to be a dampener on an efficient cost pass through mechanism. The 60% dividend payout in FY11 may not be recurring. Top Glove is maintaining its dividend payout policy at a minimum of 40%. ' HwangDBS Vickers Research, Oct 12
This article appeared in The Edge Financial Daily, Ocotber 13, 2011.
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