Top Glove - Record-Low Quarterly Profits From Weak ASP
- Top Glove (SGX:BVA)'s 9MFY22 (Sep 2021 to May 2021) core net profit came in at RM287.3m (-96.1% y-o-y); below expectations at 63% of our and 55% of Bloomberg consensus FY22 estimates.
- In our view, Top Glove’s ASP has likely bottomed in 4QFY22F (we expect a 5% q-o-q decline) at US$22 per 1k pieces. Yet, we believe this does not indicate that sector supply-demand dynamics improved as customers are keeping low inventory levels (slower buying patterns) while new capacity is still aggressively added in the sector. We believe this is due to recent cost hikes, and expect lower margins in near-term despite a pick-up in sales going forward.
- In view of the current weak operating environment, Top Glove will defer the commissioning of new capacity. In its 3QFY22 briefing, Top Glove stated that it will not be adding new capacity in 2022, though it aims to grow capacity by an average of 12.1% y-o-y per annum by Dec 25. Also, Top Glove did not discount further slowdowns in its expansion plans.
- We lower FY22-24F EPS forecasts to account for lower sales volume and decline in ASPs. In tandem with our EPS cuts, our target price drops to RM1.00 (24x CY23F P/E), while we keep our REDUCE call.
- In our view, the worst is not over for Top Glove as we believe current valuations (77% premium to 5-year mean) have yet to account for further downside to its earnings, while the operating environment remains weak.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
Walter AW CGS-CIMB Research | https://www.cgs-cimb.com 2022-06-10 2022-06-10
Read also CGS-CIMB's most recent report:
2022-09-20 Top Glove - Tough Times Remain Ahead
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