Research houses raise target price for Top Glove

KUALA LUMPUR, May 14 -- Research houses have raised the target price (TP) for Top Glove Corp Bhd amidst the COVID-19 pandemic and tight supply condition.

RHB Research said it had upped the TP for the stock to RM13.30 from RM7.01, a 43 per cent upside and two per cent yield.

"We expect a superb third-quarter financial year 2020 (Q3 FY20) results ahead – almost doubling quarter-on-quarter – as a tight demand-supply dynamic has driven up average selling prices (ASPs).

"As the world’s largest gloves producer, Top Glove stands to benefit from the unprecedented surge in demand for gloves due to COVID-19. The counter is now top pick for the sector," it said in a note today.

RHB Research said it expected Q3 FY20 earnings to surge 85 per cent to RM215 million compared to RM116 million in Q2 FY20. 

It has also increased the demand growth estimates to 15-18 per cent in 2020 compared to 13-15 per cent previously.

On the supply side,  the research house has reduced the supply growth estimate to 10.1 per cent from 11 per cent previously.

The Movement Control Order (MCO) has caused construction delays for most glove companies under its coverage.

"Even after COVID-19 subsides – which we believe it will eventually – the world is unlikely to lower gloves consumption, as the fear factor remains.

"This should result in a structural increase in gloves demand and lead to rising health awareness globally," it added.

Meanwhile, Kenanga Research has raised the TP for Top Glove to RM12.60 from RM6.50 and upgrade the counter to outperform from perform.

Top Glove has received strong orders from China, Hong Kong, Singapore and South Korea, Europe, the US and other countries.

"With current utilisation levels at more than 90 per cent, the group is able to further ramp up production close to 100 per cent to meet the surge in demand.

"It has new capacity coming onstream with F2B and F5A plants having commenced operations, which will add 3.2 billion pieces of gloves per annum.

"With other conditions remaining the same, a one per cent increase in volume sales and ASP will raise our FY20 and FY21 net profit by one per cent and 1.2 per cent," it added.

Kenanga Research has raised Top Glove's FY20 and FY21 net profit by 41 per cent and 61 per cent respectively, after taking into account higher growth for volume sales from 13-16 per cent to 15-28 per cent.

 ASP projection has also been raised from US$21 (US$1=RM4.33) per 1,000 pieces to US$26 per 1,000 pieces.

At noon-break, Top Glove shares rose 71 sen to RM10.02 with 23.6 million shares changing hands.

COVID-19 has killed 293,782 lives as at May 13 May compared with the combined total deaths caused by H1N1, MERS, and SARS estimated at 20,081 lives.

-- BERNAMA