Top Glove - CGS-CIMB Research 2022-09-20: Tough Times Remain Ahead

Top Glove - Tough Times Remain Ahead

  • Top Glove (SGX:BVA)'s 4QFY22 (1 Jun 2022 to 31 Aug 2022) core net profit came in at RM3.4m (-99.4% y-o-y), excluding losses of RM56m (inventory write-down to net realisable value). This brought FY22 (1 Sep 2021 to 31 Aug 2022) core net profit to RM465m (-94.1% y-o-y); above expectations, ahead by 155% of our and 153% of Bloomberg consensus’ FY22 estimates).
  • Earnings beat was due to a surprise new revelation by Top Glove that it had conducted an inventory write-down of RM229m in FY22 (9MFY22:RM173m). No dividend was declared in the quarter; within expectations.
  • Q-o-q, 4QFY22 revenue and core net profit waned 32.4% and 95.3%, respectively. This was due to a further worsening of the supply glut in the global glove sector, leading to:
    • a decline in sales volume (-35% q-o-q),
    • lower ASPs (-5.4% q-o-q) and
    • weaker economies of scale.
  • Also, Top Glove incurred margin compression (EBITDA margins: -2.6% points q-o-q) from higher operating costs, i.e. hikes in both minimum wage (+25% y-o-y) and natural gas costs.
  • Heading into FY23F, we expect Top Glove to post a 90% y-o-y dip in core net profit, assuming ASPs of US$19/1k pieces (-28.5% y-o-y) and utilisation rate of 50% (FY22: 50%). Note that, we expect the supply glut in the global glove sector to only dissipate towards 2HFY23F.
  • While Top Glove intends to raise its ASPs by 5% in Oct 22 to pass on cost hikes, this is likely to be difficult in the near term given the current operating environment (industry utilisation rate remains low at 40-45%, while ASPs currently stand at US$18-20/1k pieces).
  • In view of the current weak operating environment, Top Glove is deferring its capacity expansion plans in 2023F (current annual capacity of 100bn pieces). It is only expecting to grow its annual capacity by 4% (+4bn from current) in 2024F and 11% (+11bn from current) in 2025F. We view this positively as it will alleviate pressure on Top Glove to sell its new capacity, on top of the positive impact on overall global glove supply-demand dynamics.
  • We lower our FY23-24F EPS forecast for Top Glove by 60-86.5% to account for lower-than-expected sales volume and weaker ASPs. Accordingly, our target price for Top Glove is lowered to RM0.50 (22x CY24F P/E, in-line with its 10-year historical mean).
  • We keep our REDUCE call on Top Glove as current valuations (+2 standard deviation of its 5-year mean) have yet to fully account for its weak near-term earnings prospects.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @

Walter AW CGS-CIMB Research | 2022-09-20
SGX Stock Analyst Report REDUCE MAINTAIN REDUCE 0.15 DOWN 0.315

Previous report by CGS-CIMB:
2022-06-10 Top Glove - Record-Low Quarterly Profits From Weak ASP

Target prices by 3 other brokers at Top Glove Target Prices.
Listing of broker reports at Top Glove Analyst Report.

Relevant links:
Top Glove Share Price History,
Top Glove Announcements,
Top Glove Dividends & Corp Actions,
Top Glove News Articles


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