Key highlights of Top Glove analyst briefing

Key highlights of Top Glove analyst briefing

Capitalising on rising demand of nitrile glove. Top Glove is now producing more synthetic or nitrile gloves to meet up the rising demand. The volume of nitrile gloves in their product mix has doubled to 14% in 1QFY12 from 7% in 1QFY11. The Group is optimistic that the rising demand of nitrile glove will not come at an expense of latex glove despite the hike of latex prices as users in certain region and industry still stick with the usage of latex gloves.




Capacity to deal with bird flu. Top Glove will have enough inventories for supply should the bird flu in Hong Kong worsens. Currently, Top Glove has 417 production lines which could produce up to 37.4 billion pieces of glove per year, and the ongoing expansions could see their production lines increase to 479 lines with 43.1 billion pieces per annum by August 2012. Currently the utilization rate of the production stands at an average of 70%.



Targeting 30% global market shares. Top Gloves targets to boost its global market share to 30% by end of 2012 from 26.7% they currently own. In order to achieve the target, Top Glove would have to supply approximately 45 billion pieces of gloves from 40 billion pieces they sold last year, which translates into 11% increase in volume. Over a longer period Top Glove management aims to double their revenue from RM2bil to RM4-5bil in 5 years’ time, which could potentially double their net profit as well.





Outlook on latex price. Top Glove remains positive on the latex price movement. They expect the latex price to hover around current level of RM6 and do not foresee the dramatic price surge happened in 1H2011 in near term. However, the upstream production to gain better control over latex supply remain a long term plan as the management is still looking at the plants in Cambodia and Indonesia. Furthermore, it takes 7 years for the rubber trees to be harvested.




Rich valuation. The company currently trades at 20x consensus FY12F PER, which is well above of its historical mean of 13x.We value Top Glove (Not Rated) at 16x consensus FY12F PER (between its mean and +1 standard deviation), which translates into fair value of RM4 as we do not foresee any immediate catalyst for the share price.

Regards,
Soong Wei Siang

though top glove got ex entitlement


7113 TOPGLOV Single Tier Final Dividend 12% 09/01/2012 11/01/2012 19/01/201