March 16, 2012

Top Glove Corporation (Results Review): 2H to be lower than 1H, valuation rich

Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: ECMLIBRAPrice Call: SELLTarget Price: 4.00



Maintain SELL, TP: RM4.00

1HFY12 net profit of RM84.9m (+38% y-o-y) was above expectations at 55-63% of house and consensus full year estimates. The variance from our forecast was due to lower-than-expected natural latex price. However, we are keeping our earnings forecasts unchanged as we anticipate lower 2H earnings due to higher-than expected input natural latex price which could potentially lead to lower-than expected sales. YTD feedstock natural latex price has risen 22% to RM7.79/kg. Over the medium term, latex prices may remain high due to the Thai government's intervention to support rubber prices, coupled with the wintering season (Feb-May 2012). Top Glove is trading at 23x FY12 EPS (28% above its historical average of 18x) vis-''-vis 13% average earnings growth in FY12-14 which implies a rich PE. Maintain Sell with TP of RM4.00 based on 18x CY12 EPS, in line with its historical average. (refer to report for details)

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