Saturday, October 10, 2009

Top Glove to benefit from demand growth

Published: 2009/09/29

TOP Glove Corp Bhd, which has a 22 per cent global market share, is expected to continue to benefit from robust demand growth estimated at 8-10 per cent a year, Affin Investment Bank said today.

In a research note, it said the medical latex gloves industry remains a fast growing market with increased healthcare awareness in developing nations like India and China where healthcare standards and spending significantly lags behind developed nations.

Affin Investment is maintaining its 'buy' rating on Top Glove with an unchanged target price of RM8.50, pegged to CY10 PE of 14x.

"While most of its peers are expanding capacity in the higher-end nitrile gloves segment, Top Glove's focus remains in powdered gloves.

"Demand for lower-end powdered latex gloves are extensive among developing countries like India, China and Latin America, whose end-users are more typically cost-conscious, providing vast growth potential for Top Glove," it said.

Powdered gloves are 16-25 per cent cheaper compared to powder-free and nitrile gloves and hence, is largely volume-driven, benefiting large producers like Top Glove, Affin Investment added.

Top Glove’s 4Q09 results are due to be released on Oct 7th, 2009. The investment bank expects that the strong earnings momentum recorded in 3Q09 will likely be sustained in 4Q09, backed by stronger demand for medical gloves in lieu of the H1N1 flu virus outbreak.

"Assuming 4Q09 earnings comes in on par with 3Q09, Top Glove is set to record FY09 net profit of about RM155 million (+41% yoy), largely inline with our estimates of RM149 million.

"Top Glove’s 4Q09 earnings will also be aided by a weaker ringgit versus the dollar and lower production cost, with latex prices
easing by some 38% yoy to average at RM4.14/kg vs RM6.65/kg in 4Q08," it said.


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