RHB Research maintains ‘buy’ with Top Glove Corporation at RM 20.50 from RM 18.30, with 23 percent upside and 1 percent yield.
The research house stated that prospects for 4QFY20 and FY21 are extremely good as tight demand-supply conditions mean the ASP increase should continue.
“We expect a stronger 4QFY20 net profit and positive long-term prospects. Our TP implies 33.9x GY21F, which is close to the sector average of 33x,” RHB Research said.
Top Glove’s 3QFY20 net profit of MYR348m (+366% YoY; +201% QoQ) came in better than initial expectation of an 88 percent QoQ increase to RM 218 million.
Both sales volume growth of 25 percent QoQ and ASP increase of 5 percent QoQ were stronger than expected.
Furthermore, the company turned net cash in 3QFY20 due to exceptionally strong cashflow from operations, conversion into shares from convertible bonds and interest savings.
“We expect 4QFY20 earnings to be better than 3QFY20. As the lead time has increased tenfold, the 5% ASP increase in 3QFY20 should only be the beginning,” the research house stated in its trading notes.
As the company will focus on allocating more of its new capacity to cater for spot orders which fetch a much higher price, RHB Research estimates that 4QFY20 ASP should increase further.
“We expect Top Glove’s 4QFY20 net profit to be much better QoQ, even though 3QFY20 is already a record high due to the ASP increase.”