Top Glove‟s 3QFY14 results showed improvements from last quarter amidst
challenges of lower average selling price (ASP). Revenue recorded
RM574.0m (-5.0% YoY, +4.7% QoQ), and earnings increased to RM42.4m
(+5.2% YoY, +2.0% QoQ) from better operations efficiency, lower costs
from declining raw material prices and backed by higher US dollar.
Albeit 9MYTD results showed a marginal slip in both revenue (-3.9% YoY)
and earnings (-9.4% YoY), revenue has met 73% and 71% of our revenue and
earnings respectively. We do acknowledge that the Group has taken
necessary streamlining measures to curb the potential negative effect on
its performance, such as the disposal of its Zhangjiagang factory for
RM22m, to minimise the negative impact from China‟s operations. In line
with our dividend estimates, the Group has declared a 7.0 sen first
single tier dividend for FY14 translating to a 3.4% yield.
Lower raw material prices. With softer commodity prices, which affect ASP, top-line growth has been in jeopardy despite continuous growth in sales volume (+6% QoQ, +2% YoY). While lower raw material prices would minimise revenue, however earnings fared better from lower input costs from declining raw material prices.
Higher costs passed-through. The Group has raised its ASP by USD0.50/carton in light of the gas and electricity tariff hikes. The impact is c.RM2m additional cost/month which translates to a 1% increase in gas and 0.1% increase in total manufacturing cost.
Consolidating China’s operations. Top Glove has disposed Factory 8 in Zhangjiagang with a net gain from disposal of c.RM2m to be reflected in 4QFY14. In line the Group‟s cost rationalisation and business streamlining strategy, we believe the consolidation would likely result in China‟s contributions to return to the black exemplified by the improvements of consolidation to Factory 15 in Xinhua, having lost c.RM5.0m in 2QFY14 before the consolidation and during the consolidation c.RM1.0m in 3QFY14.
Neutral. We assume Top Glove would finish the year at best flat YoY, having met challenges in 1Q and 2Q. Nevertheless, performance will be sustained by i) rising demand from developed and emerging markets at a growing rate estimated by management to be 8%-10%, ii) continuous increase in nitrile glove capacity coupled with customers switching from latex powder free (USD23/carton) to nitrile powder free gloves (USD26/carton) which would yield higher revenue, and iii) economies of scale.
Source: PublicInvest Research - 18 Jun 2014
Lower raw material prices. With softer commodity prices, which affect ASP, top-line growth has been in jeopardy despite continuous growth in sales volume (+6% QoQ, +2% YoY). While lower raw material prices would minimise revenue, however earnings fared better from lower input costs from declining raw material prices.
Higher costs passed-through. The Group has raised its ASP by USD0.50/carton in light of the gas and electricity tariff hikes. The impact is c.RM2m additional cost/month which translates to a 1% increase in gas and 0.1% increase in total manufacturing cost.
Consolidating China’s operations. Top Glove has disposed Factory 8 in Zhangjiagang with a net gain from disposal of c.RM2m to be reflected in 4QFY14. In line the Group‟s cost rationalisation and business streamlining strategy, we believe the consolidation would likely result in China‟s contributions to return to the black exemplified by the improvements of consolidation to Factory 15 in Xinhua, having lost c.RM5.0m in 2QFY14 before the consolidation and during the consolidation c.RM1.0m in 3QFY14.
Neutral. We assume Top Glove would finish the year at best flat YoY, having met challenges in 1Q and 2Q. Nevertheless, performance will be sustained by i) rising demand from developed and emerging markets at a growing rate estimated by management to be 8%-10%, ii) continuous increase in nitrile glove capacity coupled with customers switching from latex powder free (USD23/carton) to nitrile powder free gloves (USD26/carton) which would yield higher revenue, and iii) economies of scale.
Source: PublicInvest Research - 18 Jun 2014
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