Top Glove’s 2Q results may be below expectations

by **Cals** Thu 20 Mar 2014, 18:46

Business & Markets 2014

Written by Maybank IB Research

Thursday, 20 March 2014 10:45

Top Glove Corp Bhd
(March 19, RM5.53)
Maintain buy with target price of RM6.20: Top Glove’s results for the second quarter ended Feb 28 of financial year 2014 (2QFY14), scheduled to be released on March 20, could come in below our and market expectations. Elsewhere, its key input latex price has rebounded to RM4.93 per kg (+9% from the low in February 2014) on seasonally softer supply, but is still substantially lower than last year’s prices (year-to-date: -22% year-on-year). The ringgit has yet to stabilise against the US dollar, having slid to 3.27 from 3.35 in February 2014.

Top Glove’s 2QFY14 core net profit could be weaker quarter-on-quarter (1QFY14: RM53 million; +18% year-on-year) on: (i) softer sales volume; (ii) slight margin compression due to competition, particularly in the nitrile glove segment; and (iii) some realised foreign exchange (forex) loss as the locked-in rate was below that of spot when the goods were delivered.

Nevertheless, we believe Top Glove’s earnings could turn for the better in the sequential quarters as the impact of the lower latex price will not be reflected in the 2QFY14 results.

Additionally, we think the company may recognise some realised forex gain ahead if the ringgit continues to slide against the US dollar. We maintain our earnings forecasts for now. We also retain our “buy” rating and target price of RM6.20 as we look forward to better sequential earnings. — Maybank IB Research, March 19

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This article first appeared in The Edge Financial Daily, on March 20, 2014.