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: Affin Hwang Capital Research is retaining its Buy call for Top Glove with a 12 month target price of RM5.40.
It said on Wednesday it liked the world’s biggest glove maker’s undemanding valuations and ongoing efficiency improvement initiatives. A balanced product mix could provide a reprieve against pricing pressure in the nitrile segment.
It said the RM5.04 target price was based on 18 times its CY17E EPS. However, the risk is the currency volatility.
Affin Hwang Research said Top Glove is scheduled to announce its 4QFY16 results in mid-October. Pricing pressure remains prevalent but ongoing automation efforts and balanced product mix management could provide an avenue for underlying margin expansion.
“Despite US$ average selling price (ASP) increases throughout the quarter, we expect the overall top line to stay flattish largely due to minimal capacity additions and lower earning days, which dragged down sales volume growth. Overall margins could trend lower on higher raw material prices and the implementation of the minimum wage, leading to higher production costs.
The core net profit (CNP) could be flat on-quarter at RM60mil to RM70mil, largely due to tepid sales volume growth and higher production costs.
This will bringing FY16 total CNP to RM355mil-RM365mil, which means it would undershoot the research house’s forecast of RM372mil.
“We are positive on Top Glove’s continued expansion into Thailand after our recent visit to Factory 7 in Songkhla Province. Currently Top Glove has two glove factories and two latex processing plants in Thailand. Expansion into Thailand is strategic and logical, given its eight-year tax break as well as favourable labour supply conditions.
“Southern Thailand is also populated with rubber tree plantations, making it ideal for sourcing raw materials and cutting lead times,” it said.
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