Top Glove - UOB Kay Hian 2024-03-21: A Setback In 2QFY24 With Silver Linings

• Upgrade Top Glove to BUY with a higher target price of RM0.98.
• Top Glove's core losses widened in 2QFY24, reflecting a time lag of ASP adjustment to counter surging input costs. This offset volume growth (+18% q-o-q).
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2QFY24 earnings missed expectations.

• Top Glove (SGX:BVA)’s 2QFY24 core net loss widened to RM77.8m (34.4% q-o-q, -52.7% y-o-y), despite higher revenue of RM550.3m (+11.5% q-o-q). The deviation between revenue growth and widening core losses mainly reflects margin compression due to ASP-cost mismatch in the quarter.
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Volume sales expanded q-o-q, but margin compressed on higher input costs.

• 2QFY24 volume sales strengthened by18% q-o-q, reflecting better demand as customers ramped up inventory replenishment. Meanwhile, ASP contracted 5% q-o-q to around US$17/’000 pcs.
• Management alluded that input costs, such as nitrile and latex prices, surged 3% and 15% q-o-q respectively, but there was a 1-2 months’ time lag in terms of ASP adjustment. As such, Top Glove absorbed the higher input cost in 2QFY24, causing margin to contract q-o-q.
• Positively, utilisation rate for the quarter saw a better improvement to ~39% based on its current effective capacity of 60b pieces annually (1QFY24: ~33%).

Operating matrixes sustaining recovery momentum.

• Read more at SGinvestors.io.

Jack Goh UOB Kay Hian Research | https://research.uobkayhian.com/ 2024-03-21 SGinvestors.io

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