Results
- Top Glove posted a net loss of RM 52.6m during 4QFY22 compared to a net profit of RM470.6m in 4QFY21 and RM29.3m in 3QFY22. On the same note, quarterly revenue was down by 32.4% qoq and 53.2% yoy at RM 990.1m.
- As for 12MFY22, the Group’s net profit of RM235.9m was down 97% yoy on the back of normalisation of ASP.
- Below expectations. Top Glove’s 12MFY22 net profit of RM235.9m was below our in-house and market estimates which merely account for 62.1% and 78.5% of full year earnings forecasts respectively. The lower-than-expected earnings were dented by continuously upward movement of production costs which compressed the Group’s margin.
- Bottomline in red. Top Glove ended FY22 in red as the oversupply situation and overstocked consumers continue to pressures the group’s earnings. We were guided by the Management that sales volume declined by 35% qoq while glove average selling price (ASP) was down by 5.4% qoq to USD22/1000pcs. The softer demand were resulted from ‘Wait and See” approach adopted by its customers in anticipation of further decline in ASP. We also understand that customers’ inventory level still remain high. These factors has led to a slowdown in orders and prolonged downward trend of glove ASP.
- Unable to pass through cost amid oversupply situation. PBT margin was down by 7.1ppts qoq, resulted from lower ASP and higher production costs. The Group’s production is badly impacted locally due to hike in natural gas tariff by approximately 60% over the course of FY2022 as well as the introduction of new minimum wage that came into effect in May 2022. The Group was unable to pass through cost amid the ongoing oversupply situation.
Comments
- Remain gloomy ahead. Moving forward, the Group expects the challenging business environment to persist as the gloves oversupply situation inevitably resulted in low utilisation rate which translates into higher unit cost. Besides, we are aware of several factors such as implementation of new minimum wage and increase in natural gas and electricity prices will continue to compress its margin. Besides, natural gas tariff is expected to continue to trend upwards in the coming quarters. While we understand the management is activating cost past through mechanism (increase ASP by 5%) but we deem this to be challenging due to torrid competition among the glove players to grab a larger piece of market share. Overall, we deem business outlook for the Group to remain sluggish amid the oversupply situation. We expect the situation to remain at least until end of CY2023.
Earnings Outlook / Revision
- We slash our FY23F net earnings forecasts by 14.5% yoy to RM 325m to account for anticipate higher operating cost and lower ASP amid oversupply condition. Also, we introduce our FY24F earnings forecast of RM 368.9m (13.5% growth).
Valuation / Recommendation
- Maintain SELL with a lower target price of RM 0.63 (RM1.10 previously) following our earnings downgrade. Our target price is now pegged at 15.4x FY23F PER of 4.1sen (5sen previously), which is higher than its -1 standard deviation of its 5-year mean PE of 5.6x.
Source: JF Apex Securities Research - 21 Sept 2022
