KUALA LUMPUR: Public Investment Bank (PublicInvest) has maintained its neutral call on Top Glove Bhd with an unchanged target price of RM1.51, despite some signs of improving demand as the US considers switching its imports from China to Malaysia.
This shift is partly due to an increasing number of Chinese glove manufacturers being added to the US Food and Drug Administration (FDA) import alert list.
Top Glove is expanding its production capacity by adding new production lines to accommodate rising sales volumes, especially as Chinese manufacturers face FDA and tariff issues.
This strategic move aims to meet the increased demand, showing a positive trend in order replenishment, according to PublicInvest.
"Despite some signs of improving demand, the operational landscape remains challenging, with limited upside expected in average selling price (ASP) growth.
"Given these factors, we maintain a neutral rating on Top Glove," said PublicInvest in a note today.
PublicInvest said that Top Glove managed to increase ASPs by 3.0 per cent quarter-on-quarter (QoQ), as customers are more receptive to higher prices due to depleting stockpiles.
The pricing gap between Malaysian and Chinese glove manufacturers has narrowed to between US$0.50 and US$1.00 per 1,000 pieces of gloves, down from approximately US$3.00 per 1,000 pieces previously.
Top Glove reported a net profit of RM50.7 million for the third quarter ended May 31, 2024 (3QFY24), compared to a net loss of RM130.6 million in 3QFY23, mainly due to higher sales volume.
After excluding non-operating items, including a one-off sale of excess land, the core net loss for 3QFY24 stood at RM53.5 million, it added.
"The results came in below both our and market expectations. We observed a quarter-on-quarter hike in raw material prices, with natural rubber latex jumping 20 per cent and average nitrile butadiene prices increasing by 16 per cent," said PublicInvest.
However, raw material prices are expected to normalise going forward due to seasonality, as the research house pointed out.
"The discrepancy in our earnings forecast was mainly due to a higher-than-expected rise in raw material prices. We cut our FY24 earnings forecast by 12 per cent and maintain our FY25–26 earnings forecast," added PublicInvest.
PublicInvest also noted that Top Glove's revenue increased by 15.7 per cent QoQ to RM636.9 million.
Revenue in Malaysia rose to RM567.8 million, while revenue in Thailand and China declined by 14.7 per cent and 3.5 per cent respectively.