KUALA LUMPUR: Shares in Top Glove Corp Bhd
rose marginally in early trade Friday despite its latest financial results coming in below analysts’ expectations.
The glove maker rose two sen, or 1.94% to RM1.05 with 6.67 million shares traded at 10.03 am. It has risen over 15% so far this year.
In the fourth quarter ended Aug 31, the glove maker's net loss narrowed to RM3.57 mil from RM461.7 mil last year. Revenue rose by 75.5% to RM835.3 mil, up from RM476.1 mil.
For the full financial year (FY24), Top Glove posted a smaller net loss of RM61.8mil compared with RM925.2mil while revenue rose 11.5% to RM2.5bil against RM2.26bil in FY23.
Philip Capital noted that Top Glove's FY24 results did not meet expectations, with losses surpassing their forecast of -RM147mil and the consensus estimate of -RM140mil, primarily due to higher-than-expected operating costs.
“We cut our FY25–26E earnings by 8–11% to account for the impact of a stronger ringgit and introduced our FY27E earnings (+30%). Given the uneven recovery in earnings, we are also shifting our valuation methodology from a P/E to a P/B approach (at 1.4x, below its 3-year mean) on FY25 book value,” it said.
Philip Capital has raised its target price to RM1.03 from 60 sen.
“Despite the earnings cut, we are upgrading our rating to hold (from sell), as we expect Top Glove to return to profitability in the upcoming quarters amidst the ongoing improved sales volume and average selling price (ASP), benefiting from the US tariff hike on China glovemakers.
Meanwhile, RHB Investment Bank Bhd (RHB IB) noted that despite the weaker-than-expected results, there has been a significant improvement in operating dynamics.
They acknowledged management’s ongoing commitment to enhancing operational efficiency, which has positioned the group for a potential turnaround.
“FY24 numbers came in below our expectation largely due to the prolonged suboptimal plant utilisation at the beginning of FY24 and the weakening of USD/MYR. Realised ASP was only up by 3% QoQ to US$19.7 bringing its full-year FY24 ASP to US$19.3 (-11% YoY),” RHB IB said.
The research house stated that Top Glove’s management anticipates the impact of a higher ASP to begin in November, as they start passing on the effects of the weakening US dollar to customers.
Additionally, Top Glove plans to increase its capacity by four billion next year, raising its effective capacity to 64 billion (up from 60 billion) by 2025.
The research house expects sales volume growth momentum to sustain into 2025 on the back of a pick-up in inventory replenishment activities and potential trade diversion arising from the US tariff on China.
Post results, RHB IB’s earnings forecasts for FY25 and FY26 remain largely unchanged.
“We roll forward our base year to FY25F and incorporate FY34F as our terminal year into our DCF valuation. Post adjustment, our DCF-derived target price is now at RM1.28 and incorporates a 2% ESG premium as Top Glove’s ESG score of 3.1 is above the country median,” it added.
