The strong global demand for gloves has pushed Maybank IB Research to maintain its “buy” call and target price on Top Glove

At RM9.53 ($3.14), its call price gives the Malaysia-headquartered company a 24% upside from its RM7.76 price on September 14, analyst Lee Yen Ling observes. She adds that the counter is the brokerage’s “top pick” among the glove counters.

Top Glove’s strong performance this year is slated to increase its earnings per share for FY20/21/22E by 5%, 53% and 224% respectively, says Lee. 

This follows an increase in the Average Selling Prices (ASPs) of gloves – with that for nitrile gloves taking the lead with a 4.1 fold increase in prices from February 2020, before the coronavirus became a global health crisis.

This translates to a 15% month-on-month increase in prices of nitrile glove orders due in November 2020, Lee explains.

She says, this increment is 3 – 6 months ahead of that quoted by Top Glove’s close competitors, Malaysia-based Hartaelega and Kossan. Lee expects these two companies to follow suit and increase their ASPs to narrow the gap.

Conversely, the rate Top Glove’s increase in ASPs is in line with that of nitrile gloves produced by Thailand-headquartered Sri Trang.

“We note that some of [Top Glove’s] customers are willing to lock in their next 12 months orders at Nov’s high ASP level, signaling that even customers are expecting the ASP to stay elevated in the next 12 months,” observes Lee.

She expects prices to surge between 37% and 58%, in line with the increase in the counter’s spot selling prices. Presently, its spot prices hover between US$130 ($176.50) to US$150/k pieces.

Meanwhile, the ASPs for Top Glove’s latex powder free gloves has “re-accelerated” with a 10% month-on-month increase, for November. 

This follows strong demand, as some customers have shifted their orders to these gloves as its sales lead time of 15 months, is shorter than the 19 month duration needed for nitrile gloves.

Drawing reference to Sri Trang’s ASPs for latex powder free gloves – which is 15% higher than that of Top Glove – Lee says “there is still room” for its ASP to go past its current 10% increase.

Looking ahead, Lee expects the counter to rake in net profits of RM1.05 billion for its 4QFY20E ended August 2020. 

This is up from the net profits of RM348 million and RM80 million logged in 3QFY20 ended May and 4QFY19 ended August 2019 respectively.

Lee’s forecast is based on a “blended ASP estimate of US$37/k pieces (up 63% quarter-on-quarter” and sales volume estimate of 19.1 billion (up 12% quarter-on-quarter)”. She is also looking at a 28% quarter-on-quarter increase in operating costs.

Meanwhile, Lee expects net profit for 1QFY21E ending in November to hit RM2.15 billion, while that for 2QFY21E ending in February 2021 reaches RM3.52 million.

“We do not expect a special dividend for FY20E, but see the possibility of a special dividend in FY21E given the supernormal earnings,” she notes.

Shares of Top Glove were 22 cents or 7.9% to close at $3.00 on September 16.