- Top Glove (SGX:BVA) reported a 2QFY25 core net profit of MYR30m - in line. Top Glove expects sales to pick up in 2HFY25, anticipating higher glove demand as front-loaded inventories deplete and restocking activities resume from Mar-Apr 25.
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- While our lower revised target price reflects risk from additional supply from China glove makers by 2H26, we upgrade Top Glove to HOLD (from SELL) on improved earnings in coming quarters.
Returns to profitability.
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- The strong y-o-y improvement in 1HFY25 performance was due to better sales volume (+78% y-o-y) and ASP (+3% y-o-y, 2QFY25 ASP: US$19.9/k pcs). Utilisation rate (UR) was 58% (1QFY25: 64%, 2QFY24: 40%).
Key takeaways from 2QFY25 results concall:
- Pricing strategy remains the key driver to sales. To stay competitive, Top Glove is undertaking ongoing cost-cutting exercises to ensure it prices its products attractively vs China glove makers, safeguarding its market share in non-US markets.
- Sales volume is expected to pick up gradually as pre-higher US tariff stocks deplete, with Top Glove receiving more orders and customer audit requests since Mar 25. Top Glove’s exposure to US markets has increased to 23% of 2QFY25 sales volume (from 18% in 1QFY25).
- While Top Glove plans to increase its capacity to 70b pcs p.a. (from 64b currently), it will only reopen idle plants when the UR reaches 65-70%.
Maintain earnings forecasts.
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