Top Glove’s Dismal Results Weighs On Future Outlook

Top Glove Corporation reported a core PATANCI of RM175.2m in 12MFY22. This is after excluding a one-time-off item of RM60.8m. The results came in below and consensus estimation at 51% and 58.3% of streets’ FY22F.

Revenue slumped -52.3%yoy and -32.4% qoq to RM990.1m in 4QFY22. The negative performance was largely due to the lower average selling price for gloves and reduced orders from customers. Despite softer demand, the group
recorded a remarkable pick up in sales from North America. This is due to low-base effect as the group was only permitted to be cleared and allowed to begin exporting and selling gloves to the US. Meanwhile, Top Glove recorded core net loss of RM80.7m in 4QFY22 against core net profit of RM441.4 in 4QFY21, mainly due to higher production costs as a result of global supply chain disruptions and the inflationary effect.

Quarterly, the group’s core net loss of -RM80.7m in line with a negative operating profit margin of -4.2% from +2.8%. The poor performance was attributed to several factors, including lower ASPs (-5.4%qoq), reduced sales volume (-35%qoq), increased natural gas tariff (+10% qoq), the full effects of the increased minimum wage, as well as higher packaging materials and chemicals cost.

Core profits for 12MFY22 fell by -97.7%yoy to RM175.2m, in tandem with reduced revenue of RM5.57b (-65.9%yoy). The weaker revenue was caused by lower sales volume and ASPs. Nitrile gloves made up 39% of the overall sales volume during FY22, which was less than FY21’s 44%. This is followed by NR powdered gloves, NR powdered-free gloves, Vinyl/PE/CPE, and surgical gloves at 27%/26%/5%/3%. In 12MFY22, the operating profit margin decreased by -54.6ppt yoy to 6.7%, mostly due to higher natural gas tariff (+60%yoy) and higher minimum wage.

Downgrade to SELL (from NEUTRAL) with a revised TP of RM0.54 (from RM1.01) given the downward earnings adjustment in this report. MIDF’s valuation is based on FY24F earnings of 4.0sen multiplied by PER multiple 13.5x, slightly above
its 2-year historical average PE of 13.2x. It believes that the group has limited capacity to completely pass on the cost going
forward by increasing the ASPs since the customer can simply switch to other glovemakers.

The demand-supply dynamics are anticipated to continue in the near term as more countries enter endemic phases, which weaken demand. Potential upside risks include an increase in ASP and sales volume, smaller players leaving the market, and industry consolidation due to low valuation. The dividend yield is estimated at 2.2% for FY23F.

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