16 March 2010

PP 7767/09/2010(025354)
Malaysia Corporate Highlights
RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts Pr e v i e w
16 March 2010
MARKET DATELINE

Top Glove Corporation Share Price

Fair Value
:
:
RM12.18
RM15.50
Expect Yet Another Strong Set Of Results Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (TOPGLOV; Code: 7113) Bloomberg: TOPG MK

Net Core Net
FYE Turnover profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE GDY
Aug (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009 1,529.1 169.1 57.3 57.3 54.2 21.2 - 4.6 net cash 22.6 2.4
2010f 2,062.3 262.7 89.0 89.0 55.3 13.7 79.0 3.8 net cash 28.7 3.7
2011f 2,342.1 283.8 96.2 96.2 8.1 12.7 87.0 3.2 net cash 26.0 3.8
2012f 2,648.1 300.6 101.9 101.9 5.9 12.0 101.0 2.7 net cash 23.6 4.2
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC # Excludes EI * Consensus Based On IBES

♦ 2Q10 results preview. Top Glove is expected to announce its 2Q results Issued Capital (m shares) 307.4
on 17 Mar. We believe the results could, once again, surprise on the upside Market Cap(RMm) 3,744.7
on the back of stronger-than-expected margins. We understand that Top Daily Trading Vol (m shs) 0.6
Glove has managed to hold its margins steady qoq despite higher latex 52wk Price Range (RM) 4.675-12.26
cost and a weaker US$ against RM. This, in our view, is a strong testament Major Shareholders: (%)
of the glove manufacturers’ ability to pass on rising costs and adverse Tan Sri Dr Lim & family 38.6
Overlook Partners Fund 5.0
exchange rate movements to its customers.
Matthews International 4.8
♦ Qoq, revenue is expected to rise by 5-10%. We expect revenue
growth of around 5-10% on the back of: 1) upward adjustments made to FYE Aug FY10 FY11 FY12
selling prices (+4.5% qoq); and 2) increase in sales volume as a result of EPS chg (%) 13.3 12.1 9.6
full contribution from F19. 2Q bottom line growth is likely to mirror that of Var to Cons (%) 12.7 10.6 0.9

revenue as we understand that margins were flattish qoq. This is despite

PE Band Chart
higher latex cost (+31.3% qoq) and a weaker US$ (-0.8% qoq) as both
these were compensated by higher selling prices and cost savings resulting
PER = 25x
from better economies of scale (mainly for Medi-Flex). PER = 20x

♦ Capacity expansion. Commercial production for 16 new lines (+1.5 bn

PER
PER
=
=
15x
10x
pieces p.a.) at F20 has been pushed back to the end of this month (initial
target was Feb’10) due to the slight delay in the installation of the lines.
However, progress for F21 is on track and commercial production is
expected to commence in Jul ’10 (+1.5 bn pieces p.a.). Top Glove is also
adding another 8 new lines (+0.75 bn pieces p.a.) at F18 (Medi-Flex’s Relative Performance To FBM KLCI
factory). All-in, Top Glove’s annual production capacity is expected to rise
to 35.3bn pieces by end-FY10, from 31.5bn pieces p.a. currently. Top
Top Glove
Glove also plans to install 32 new lines (+3.0 bn pieces p.a.) at APLI’s
former premises and commercial production is expected to start by Feb
‘11.
♦ Risks. The risks include: 1) sharp surge in raw material (latex) and/or FBM KLCI
energy (natural gas) prices, which may result in margin squeeze; 2) an
appreciating RM against the US$; 3) execution risk from capacity
expansion; and 4) weaker-than-expected results from overseas operations.
♦ Forecasts. We have revised up our FY10-12 EBITDA margin projections
by 1.3-2.0%-pts to 17.8-19.9% (from 16.5-17.9% respectively) and
accordingly have raised our FY10-12 net profit projections by 9.6-13.3%.
We have also revised our FY10-12 gross DPS projections to 34.0-38.0 sen
(from 22.5-27.0 sen), which is based on a revised dividend payout ratio of
37.5-39.3% respectively (from 29.5-29.9% previously). David Chong, CFA
♦ Investment case. Our fair value has been raised to RM15.50 (from (603) 9280 2179
david.chong@rhb.com.my
RM13.80) based on unchanged target CY10 PER of 17x. We reiterate our
Outperform call on the stock.

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 16 March 2010

Table 2: Earnings Forecasts Table 3: Forecast Assumptions

FYE Aug (RMm) FY09a FY10F FY11F FY12F FYE Aug FY10F FY11F FY12F

Turnover 1,529.1 2,062.3 2,342.1 2,648.1 Capacity (bn pcs p.a.) 34.4 39.9 41.8
Turnover growth (%) 54.0 34.9 13.6 13.1 Capacity utilisation (%) 85.0 85.0 90.0
Change in ASP (%) 0.1 1.0 1.0
EBITDA 288.5 410.8 443.2 470.9
EBITDA margin (%) 18.9 19.9 18.9 17.8

Depreciation (57.0) (61.1) (66.3) (72.8)

EBIT 231.5 349.7 376.9 398.1

EBIT margin (%) 15.1 17.0 16.1 15.0
Net Interest (8.5) (1.6) (1.8) (1.8)
Associates (1.0) 0.0 1.0 2.0

Pretax Profit 222.0 348.1 376.1 398.4

Tax (53.9) (80.1) (86.5) (91.6)
Minorities 1.1 (5.4) (5.8) (6.1)
Net Profit 169.1 262.7 283.8 300.6
Source: Company data, RHBRI estimates

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Industry/Sector Ratings

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