By Sherilyn Goh
Top Glove sees its call upgraded by several research houses on the back of its stellar performance in the first quarter of financial year 2016 (1QFY16) ended Nov 30, 2015 which saw net profit growing 163% year-on-year (y-o-y) to RM128.91 million, on the back of group revenue which rose 41% y-o-y to RM800.276 million.
Among others, CIMB Research upgraded its call to “add”, with a revised target price to RM16.00 per share, up from RM11.00 per share previously. Calling the results quarter a new record, TA Securities also upgraded its recommendation to “buy” with a target price of RM15.80 per share from RM10.60 per share previously.
According to CIMB Research, Top Glove’s 1QFY16 core net profit beat both house and consensus expectations, coming in at 39% and 37% of the respective full-year forecasts. This comes as the glove maker records higher shipment volumes, improved operating efficiency via automation and continue to advantage from favourable foreign exchange movements.
The research house added that the group plans to increase its annual production capacity by 18% from 44.6 billion pieces in FY15 to 52.4 billion pieces in FY17, and is on track to commence production at Factory 27 in Lukut, Port Dickson by February 2016 with a capacity of 2 billion pieces per annum.
On top of that, the group’s new plants are expected to deliver higher operating margin compared to older plants due to automation and faster production lines.
Equipped with a strong balance sheet, TA Research said the group is well suited and capable of undertaking inorganic expansion via merger and acquisitions. As at 1QFY16, Top Glove is reported to have a net cash position of RM366.1 million.
“We lift FY16-FY18 earnings per share by between 40% and 44% to account for higher utilisation and foreign exchange assumptions. Overall, we maintain our ‘add’ rating on the stock with a higher target price of RM16.00, still based on 21 times calendar year 2017 price-earnings,” it said.
Key potential re-rating catalysts, it added, include sustainable margin expansion, improving liquidity from upcoming bonus issue. More updates are expected to follow from its analyst briefing in January 2016.
Downside risks, according to TA Research, include rationalisation of energy subsidies and delay in its expansion plans.
“We revise our target price for Top Glove upwards to RM15.80 per share. This is based on a higher CY16 earnings per share of 79.1 sen against an unchanged price-earnings of 20 times. Additionally, we upgrade our recommendation on the stock to ‘buy’,” it said.
At 11.46am, Top Glove rallied 22 sen higher to RM12.08, its 52-week high following its results announcement.
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