Oct 07 2009
KUCHING: Top Glove Corporation’s (Top Glove) expansion plan to meet increasing demand for gloves is on track.AmResearch Sdn Bhd (AmResearch) in a research report yesterday cited that Top Glove’s twentieth and twenty-first factory are expected to be completed in February and July next year respectively.
This will enable the world largest rubber glove manufacturer to produce another 10 per cent to 34.5 billion pieces of gloves per year from an additional 32 production lines by end of the fiscal year of 2010.
The management of Top Glove indicated that orders from South American countries such as Argentina and Brazil and new markets in Chile and Colombia remain robust.
Besides that, higher average selling prices and a lower cost structure which provide better than expected sustainable margins will also contribute to higher earnings.
Top Glove is expected to report better than expected earnings results in the fourth quarter of fiscal year 2009. Its earnings in the fourth quarter of fiscal year 2009 are expected to beat its third quarter of fiscal year 2009 results of RM42 million.
The higher earnings are expected to come from the contribution of recurring orders derived from sales of basic powdered gloves to South Americans countries. In addition, the research house forecasted that the demand for rubber gloves remains robust, at a healthy growth rate of 8 per cent to 10 per cent annually.
“We estimate the Influenza A(H1N1) related buying to spur the global demand by an additional 14 billion to15 billion pieces on top of the 11 billion to 17 billion pieces from organic growth,” the research firm said.
It also raised Top Glove’s earnings forecast for financial year end 2009 to financial year end 2011 by 2 per cent to 8 per cent.
It anticipates Top Glove to achieve a net profit of RM163 million for the full year which translates into an increase of 48 per cent year-on-year (y-o-y).
“As such, we have increased our financial year 2010 and financial year 2011 dividend forecasts to 18 and 19 sen per share, respec-tively, premised on a 30 per cent dividend payout.
“However, we are keeping our forecast of 15 sen per share for the financial year 2009. We will not be surprised if the management were to choose to reward shareholders,” said AmResearch.
It also said the group is in a strong net cash position with cash holdings of RM173 million for the nine month of fiscal year 2009.
The management of Top Glove also revealed that the group would be exempted from the new 4 sen per kg levy on imported rubber for re-export. The exemption was given by the Malaysian Rubber Board for glove manufacturers importing raw latex for their production.
The research house pointed out that valuation for Top Glove remains attractive even though the stock has outperformed the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) by 51 per cent on a relative basis year-to-date. It retained its recommendation on the group’s proven earnings deliverance backed by solid fundamentals, market share dominance in the industry, as well as better trading liquidity.
It revised the fair value of the stock to RM8.45 per share from RM8.30 per share which offers an upside potential of 18 per cent.