TUESDAY, JUNE 21 KUALA LUMPUR- Release of Bank Negara's foreign reserves as at 15 June 2016 at 1800 (1000 GMT) KUALA LUMPUR- Dewan Negara sitting at 1000 (0200 GMT) Top Glove Corp Bhd's(pic) media briefing on its third-quarter financial results at Shah Alam, Selangor at 1030 (0230 GMT)
KUALA LUMPUR: Top Glove Corp Bhd
may see weaker earnings for its third quarter results (Q3 FY 16) due next week from lower selling prices, higher raw material prices and a stronger ringgit.
Affin Hwang Capital Research, which is maintaining a Buy call on the stock with a target price of RM7.17, had on Tuesday projected the world’s largest rubber glovemaker's core net profit to be weaker on-quarter at between RM80mil and RM90mil on overall lower average selling prices (ASP), higher raw material prices and a stronger ringgit for the quarter.
Topline should stay flattish or slightly lower on-quarter, as it expect the average sales price to trend lower on supply overhang, the research house said, adding that, however, this should be offset by higher sales volume on a higher number of earning days.
Affin Hwang Capital Research expects earnings before interest, tax, depreciation and amortisation (EBITDA) margins to drop below 20% in the quarter mainly due to higher latex prices (+29% on-quarter) and stronger ringgit (+6% on-quarter), but partially offset by incremental nitrile volume growth.
It noted core net profit should come in between RM80mil (-24% on-quarter) and RM90mil (-14% on-quarter), bringing the nine months earnings to about 75% of FY16 estimates.
Kee in his report added that he expect latex prices to trend lower in coming quarters with the wintering period coming to an end.
“Latex inventory build-up, already near a record high, could accelerate when the tripartite agreement in curbing production to shore up latex prices expires in August. China’s slowing economy will likely weigh on latex prices in the absence of follow-through demand. Latex prices have declined 12% from the peak at end-April,’’ it said.
Affin Hwang Capital Research expect the near-term outlook to be underpinned by the commissioning of three new plants, which should bring its total installed capacity to 52.4bil pieces per annum (+17% yoy) by FY17.
The nitrile-focused capacity growth was in line with its strategic expansion to increase nitrile contribution to 50% to cater for growing market demand.
Incremental growth in nitrile volume should sustain EBITDA margins, partially alleviating margin pressure, it noted.
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