Top Glove - CGSI Research 2024-03-21: Inching Slowly Towards Recovery

• Top Glove (SGX:BVA) posted a core net loss of RM57.1m in 2QFY24, marginally narrower than that of the preceding quarter.

Marginally narrower losses in 2QFY24

• Revenue was up 12% q-o-q, on the back of an 18% q-o-q growth in sales volume, but this was negated by a 5% q-o-q decline in ASP, and further exacerbated by higher raw material costs, with average natural rubber and nitrile butadiene rubber (NBR) latex prices up 15% q-o-q and 3% q-o-q, respectively.
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• For the 1HFY24 period, Top Glove's core net loss narrowed to RM116.9m (1HFY23: -RM321.0m), making up 58% of our projected net loss of RM201.5m for FY24F.
• We deem Top Glove's 1HFY24 results as in line as we expect gradual earnings improvement in 2HFY24F, on the back of higher sales volumes.

Sales volume recovery evident, but ability to hike ASP unclear

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• Management expects latex prices to peak in May-Jun 2024F, and natural gas tariffs to rise in Apr 2024F, both of which could mitigate the positive impact of rising sales volumes. That said, management believes the narrowing price gap with regional players could provide an avenue for Top Glove to hike its ASPs in the coming months to mitigate the impact of rising raw material prices.
• We, however, think this is a tall order for Top Glove without sacrificing sales volumes growth, given the industry’s lingering excess capacity. As such, we maintain our FY24- 26F estimates that imply a gradual recovery going forward.

Reiterate REDUCE

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Shafiq KADIR CGS International Research | Prem JEARAJASINGAM CGSI Research | https://itrade.cgsi.com.sg 2024-03-21 SGinvestors.io

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