RHBInvest Research Highlights 17th December 2011

Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD

Research House: RHB

Price Call: SELL

Target Price: 3.63

17th December 2011

 

Malaysia Equities

Top Story

Market Outlook & Strategy 2012 ' Global headwinds & general election; another challenging year ahead Strategy Update (published 16 Dec 2011) -                  With slowing economic growth, general election and multiple headwinds from the external sector, we believe investors will be in for another challenging year ahead. Our end-2012 FBM KLCI target is set at a conservative level of 1,480, based on unchanged 13x 2013 EPS.  We expect a volatile 1H with sentiment gradually improving in the 2H as clarity on the global economy improves and investors begin to look forward to an economic rebound in 2013. -                  As global headwinds remain strong and situations could get worse, we continue to advocate a defensive investment strategy, focusing on high dividend yielding stocks with reasonably good growth potential.  Nevertheless, after a period of volatility, a recovery will undoubtedly follow and as such, we believe it pays for investors to accumulate fundamentally-robust stocks on weakness for tactical plays. Sector-wise, our key overweight calls are telecommunications, gaming, plantation, oil & gas and consumer. -                  Related story: Earnings Review ' Subdued Earnings; Market Volatile And Uncertain (2 Dec 2011)

Corporate Highlights

Gamuda ' 1QFY07/12 net profit grows 49% yoy                                                     Market Perform Results/Briefing Note -          We consider the results to be within our expectations but below consensus as we expect weaker quarters ahead on: 1) A depleting construction orderbook; and 2) Lower property profits. -          Gamuda guided that by Apr 2012, cumulatively, 28 work packages (including the RM7-8bn tunnelling package) of the Sg Buloh ' Kajang (SBK) Line of the Klang Valley MRT project worth a total of RM9bn (45% of total estimated cost) will have been awarded. The market is likely to take this with a pinch of salt, in our view. -          Given the very noticeable slowdown in the local property market of late, we feel that Gamuda's property sales target this year may not be achievable. -          Maintain Market Perform.  Fair value is RM3.02. -          Related story: Gamuda Results Preview ' 1QFY07/12 Results To Trail Consensus (12 Dec 2011)   Top Glove ' Below expectations                                                       Underperform (downgraded) Results Note -          1QFY08/12 results came in below expectations. Key variance was lower-than-expected 1Q EBITDA margin of 10.5% vs. our full-year FY12 EBIT margin assumption of 12.5%. -          FY12-14 EPS forecasts cut by 12.4-17.2% as we had overestimated Top Glove's ability to retain savings from lower latex prices. Our target CY12 PER was raised to 14x (from 13x), to bring it in line with our target FBM KLCI PER. However, the earnings revision means our fair value has been lowered to RM3.63 (from RM3.92). Downgrade to Underperform (from market perform). -          Related story: Rubber Gloves Sector Update ' Falling latex prices = Improving sentiment towards glove manufacturers (18 Nov 2011)