KUALA LUMPUR: Top Glove Corp Bhd will potentially have better results ahead due to higher production capacity and operational efficiency, said MIDF Research.
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The prospect will likely be supported by production capacity that may increase by circa 7.5 per cent.
Moreover, MIDF Research said there was a disruption to the company’s production operations in December due to the number of positive Covid-19 cases in its factory.
“We do not foresee major disruption going forward due to the precautionary measures taken. And the normalisation in production is expected to yield positive efficiency for the company,” it said.
MIDF Research said average selling price (ASP) for nitrile rubber glove was expected to be adjusted by single-digit due to the slight softening of raw material costs of about three to five per cent.
“Overall, we believe that Top Glove’s blended ASP in the second half of financial year 2021 (2HFY21) may surpass the first half of financial year 2021 (1HFY21) due to the high-base effect and potentially firmer prices of other products,” it said.
Meanwhile, MIDF Research said Top Gloves had updatep that it would allocate five per cent from the fund raise from its proposed dual listing on the Hong Kong Stock Exchange for environmental, social and governance initiatives.
“The management foresees strong growth opportunities for the developing countries with large populations by low usage such as China, Indonesia and the Philippines.
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“We think that the exercise is dilutive to its earnings starting from the financial year 2022 forcaste (FY22F) but may garner positive results in the long-run.
MIDF Research expects minimal impact on Top Glove’s FY21 earnings per share as the exercise was slated for completion by June, two months away from its FY21 ending.
MIDF Research said Top Glove’s 1HFY21 earnings had beaten its expectation, making up 62.7 per cent of the full-year estimate but was largely within consensus estimate at 52.2 per cent of full-year forecast.
The firm said the second quarter’s (Q2) net profit had risen 20.8 per cent as revenue climbed by 12.7 per cent.
“All in all, improvement in operational efficiency and higher blended ASPs have cushioned the impact of higher raw material cost and the temporary halt in production in some of its factories
“We raised our FY21 by 24.3 per cent due to the better than expected profit margin. That said, we maintain ‘Buy’ with an unchanged target price of RM8.29 on Top Gloves and keep our earnings estimate for FY22 pending further clarity for the ASP trend in the later part of the year,” it added.-NST