Top Glove - Earnings growth on track
Top Glove (RM12.86; Buy; Price Target: RM14.40; TOPG MK)
Earnings growth on track
At a Glance
3QFY10 revenue came in at RM555.9m (+9% q-o-q; +49% y-o-y) largely driven by strong demand and higher ASP. Latex powder gloves remained the Group’s key product, contributing 58% of group revenue (2QFY10: 56%). Sales in Latin America grew strongly, and comprised 21% of group revenue vs 19% in 2QFY10. Net profit of RM64.5m (-9% q-o-q; +53% y-o-y) brings 9MFY10 net profit to RM200.2m, which is c.80% of our FY10F earnings.
EBITDA margin fell to 18% (2QFY10: 22%) due to a time lag in passing on higher latex costs to customers and a weaker USD. Latex price peaked in Apr 2010 and averaged RM7.35/kg in 3QFY10 (+13% q-o-q). The Group declared 14sen interim DPS, which is in line with our expectation (full year DPS of 33sen). Capacity expansion is intact for F7, F18 and F21, which are
expected to be completed progressively by end 2010 and add a total of 3.75 bn (+12%) pieces in capacity. Balance sheet strengthened further with net cash position at RM273m, equivalent to RM0.90/share (2QFY10: RM0.88/share).
Recommendation
Reiterate Buy and RM14.40 TP based on 15x CY11 EPS. We like Top Glove for its consistent earnings delivery record, strong cash flow, and robust 27% ROE.
ANALYST: Malaysia Research Team +603 2711 2222
general@hwangdbsvickers.com.my
Earnings growth on track
At a Glance
- 3QFY10 net profit of RM64.5m (+9% q-o-q; +53% y-o-y) was within our expectation
- Declared 14sen interim DPS
- Maintain Buy and RM14.40 TP, based on 15x CY11EPS
3QFY10 revenue came in at RM555.9m (+9% q-o-q; +49% y-o-y) largely driven by strong demand and higher ASP. Latex powder gloves remained the Group’s key product, contributing 58% of group revenue (2QFY10: 56%). Sales in Latin America grew strongly, and comprised 21% of group revenue vs 19% in 2QFY10. Net profit of RM64.5m (-9% q-o-q; +53% y-o-y) brings 9MFY10 net profit to RM200.2m, which is c.80% of our FY10F earnings.
EBITDA margin fell to 18% (2QFY10: 22%) due to a time lag in passing on higher latex costs to customers and a weaker USD. Latex price peaked in Apr 2010 and averaged RM7.35/kg in 3QFY10 (+13% q-o-q). The Group declared 14sen interim DPS, which is in line with our expectation (full year DPS of 33sen). Capacity expansion is intact for F7, F18 and F21, which are
expected to be completed progressively by end 2010 and add a total of 3.75 bn (+12%) pieces in capacity. Balance sheet strengthened further with net cash position at RM273m, equivalent to RM0.90/share (2QFY10: RM0.88/share).
Recommendation
Reiterate Buy and RM14.40 TP based on 15x CY11 EPS. We like Top Glove for its consistent earnings delivery record, strong cash flow, and robust 27% ROE.
ANALYST: Malaysia Research Team +603 2711 2222
general@hwangdbsvickers.com.my
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