Higher Sales
Offset Lower Selling Prices
The 1HFY12 results were within expectations. On the
surface, the 2QFY12 EBIT was higher by 64.9% q-o-q but excluding a forex
gain in 2QFY12 and forex loss in 1QFY12,
it was actually down 8% q-o-q.
Meanwhile, latex price may inch up slightly in the shorter
term due to the wintering season but in the longer term, the commodity’s price
may fall in view of an potential global supply surplus. Maintain Buy, with an
unchanged fair value of RM6.00.
Within estimates. Top
Glove’s 1HFY12 results were within consensus and our expectations,
making up 54% and 50% of the FY12 forecasts. Overall, the 2QFY12 revenue of
RM549.0m was flattish q-o-q as higher sales volume (up 5% q-o-q) were offset by lower selling prices of its gloves due to lower latex cost (down 18%
q-o-q). The 2QFY12 EBIT of RM68.7m was
also higher q-o-q as it included an unrealized forex gain of RM15.8m while that
for 1QFY12 included an unrealized forex loss of RM16.0m. However, if we
excluded these unrealized amounts, the 2QFY12 EBIT was actually 8% weaker q-oq.
Finally, on a YTD comparison, Top Glove’s 1HFY12 revenue jumped 13% due to a 3%
q-o-q rise in sales volume on the back of a higher production capacity. The company’s 1HFY12 EBIT was also higher YTD due
to product margin improvement and the minimal impact from forex as the 1HFY12
numbers included an unrealized forex gain of RM5.3m while in 1HFY11 it incurred
an unrealized forex loss of RM0.7m.
High latex price may
not be sustainable in the long run. According to Top Glove’s presentation
which included data from the International Rubber Study Group, although the global
rubber surplus is forecast to drop from 50k tonnes in 2011 to 31k tonnes in
2012, this surplus is expected to go up to 74k
tonnes and 190k tonnes
in 2013 and 2014 respectively. Hence, although latex may go up
slightly from the current price of close to RM8.00/kg due to the
wintering season for rubber trees, we do not
foresee this price remaining
high over the longer
term. However, a reasonable price would be around RM7.00-RM7.50/kg
since the Thai Government has proposed a floor price for hard rubber of RM11.84/kg, which infers that the floor price for latex
should be at RM7.10/kg since latex comprises 60% hard rubber and 40%
water.
Maintain Buy. Our
fair value for Top Glove remains unchanged at RM6.00, based on the existing PER
of 20x, as we roll forward to the company’s FY13 earnings.
Source: OSK188
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