KUALA LUMPUR: Kenanga Investment Research has maintained its Market Perform on Top Glove with a target price of RM5.80 based on an unchanged 17 times FY16 EPS.
In a note on Tuesday, the research house said Top Glove is buying a piece of freehold industrial land measuring approximately 1.5 acres located in HS(D) 293019, Lot No. PT 32307, Mukim of Bukit Raja, District of Petaling, for RM20.3mil or RM313 per sq feet.
The said land is located beside Top Glove’s new headquarters in Setia City, Shah Alam, Selangor.
"We were not surprised by this land acquisition by Top Glove but are apprehensive because the location of the land appears to be unsuitable for its plant expansion.
Hence, it appears that this piece of land is not targeted for production of rubber gloves, which is Top Glove’s core operating business," it said.
It added that Top Glove is expected to face difficulty maintaining decent ASPs to defend its market share due to its product mix, which is skewed towards the challenging latex-based gloves market.
Nevertheless, Top Glove’s expansion plans are very much on track.
Factory 29 came on-stream in Feb 2015, boosting the total number of production lines to 484 and increasing production capacity to 44.6b gloves per annum.
Factory 29 also comes fitted with faster and technologically-advanced machinery, which means better efficiency and profitability.
In the pipeline is the expansion of Factory 27 in Lukut, Port Dickson and Factory 6 in Thailand, as well as the construction of a new facility, Factory 30 which will respectively bring the number of production lines to 538 and capacity by Sept 2016, it noted.
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