MIDF: Top Glove to see subdued earnings outlook

The shift of the global economy to the endemic stage has led the company to undergo a transition period due to demand-supply imbalance 

by ASILA JALIL / pic by TMR

TOP Glove Corp Bhd’s earnings are expected to remain subdued following the transition to the endemic stage, as well as upcoming competition in the nitrile glove segment. 

MIDF Research noted that the shift of the global economy to the endemic stage has led Top Glove to undergo a transition period due to demand-supply imbalance. 

This would lead to a normalisation of Top Glove’s profit margin in the near-term after reaching historic high in its financial year 2022 (FY22). 

“Nonetheless, the group expects demand to grow following the period of transition, albeit at a moderate pace, due to higher hygiene awareness and increased usage in new industries,” stated MIDF that it is cautious about Top Glove’s forward trajectory. 

Top Glove is also facing stiff competition in the nitrile glove segment due to entry of new suppliers in the market. 

The world’s largest rubber glove maker noted that natural rubber glove margin has been recording better performance mainly due to stronger demand, compared to the nitrile rubber margin. 

“The cost structure for nitrile gloves has been on the rise, in line with the higher crude oil prices. Coupled with the higher competition, the cost pass-through for the nitrile rubber segment is more challenging at this juncture, thereby affecting margins,” MIDF stated. 

In light of the current glove demand and supply imbalance, MIDF noted that Top Glove has deferred some of its expansion plans. 

Additionally, the current transition to the endemic stage and higher vaccination rates also pose uncertainty to the group’s expansion plans. 

“We think the increase in glove exports to the US post-Customs and Border Protection will continue to improve and enable the group to recapture its market share in the country, which could potentially help resume its expansion plans,” it said. 

MIDF maintained Top Glove’s earnings forecast for FY22, FY23 and FY24 and expects earnings outlook to remain subdued due to lack of immediate catalyst. 

It also retained its ‘Neutral’ call on Top Glove with an unchanged target price of RM1.75. 

“Our valuation pegs Top Glove at 14.5 times FY23F earnings, at par to its two-year historical mean. Meanwhile, dividend yield is decent at 3.5% for FY22F,” MIDF stated.