Top Story : Top Glove – Still cautious on near-term outlook Underperform
Briefing Note
- Management mentioned that orders are slowly picking up in 1QFY11 largely due to seasonality factors and replenishment of stocks by customers. However, management was still cautious on the near-term outlook on the demand for gloves as latex price remains stubbornly high (around RM7.54/kg currently) and the volatility of exchange rate between US$ against RM.
- The company has no plans at this juncture to delay capacity expansion plans. Top Glove’s factory F21 is targeted to start commercial production in Nov ’10 while the 16 new lines in its factory in Thailand (F7) are xpected to start commercial production by Feb ‘11. The construction of F22 in Klang is completed and xpected to start commercial production in May ’11. Top Glove is also putting in 32 new lines (+3.0 bn ieces p.a.) in a completed factory in Ipoh. Commercial production is expected to start by Aug ‘11. In total, the expansion plans would increase Top Glove’s annual production capacity to 41.3 bn pieces by end- FY11 from 33.8bn pieces currently.
- As at Aug ‘10, Top Glove’s cash pile stood at RM303.1m while its net cash position grew further to RM299.5m (9.7 sen/share). Top Glove declared a full-year net DPS of 16 sen (FY09: 11 sen), which translates to a net payout ratio of 40.3%. Moving forward, management intends to maintain their 40%
dividend payout policy and would prefer to conserve cash in case of future M&A opportunities.
- We have left our earnings forecasts unchanged for now.
- We retained both our fair value of RM5.40 (based on target CY11 PER of 12.5x) and Underperform call.
RHB Equity 360° (Top Glove, Star; Technical: Lion Industries)- 13/010/2010
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