Top Glove Corporation (Top Glove) reported a narrower net loss of RM3.6m in 4QFY24, compared to RM463.1m in 4QFY23, mainly due to a higher sales volume and ASPs. After stripping out non-operating items, 4QFY24 core net loss stood at RM42.6m (+33.8% YoY). However, full-year FY24 core net loss of RM232.1m was higher-than-expected due to lower ringgit-denominated revenue given a weaker USD. We cut our FY25-26F forecasts by 6-24%, taking into account a weaker USD, though this would also be partly mitigated by lower raw material costs and higher sales volume. Top Glove has proposed a bonus issue of up to 405.96m warrants, on the basis of 1 warrant for every 20 shares, aimed at increasing equity participation and strengthening its capital base, pending shareholder approval in Jan 2025. All told, we reiterate our Neutral call on Top Glove, with a revised TP of RM1.12, based on 2x CY25 BVPS (1-year historical PB multiple mean).

• Revenue. Top Glove’s revenue grew by 31.2% QoQ to RM835.3m, driven by a 31% QoQ increase in sales volume in 4QFY24. The growth was mainly attributable to customer order replenishments and the diversion of US orders to Malaysian players. Top Glove’s blended ASPs rose by 3% QoQ to USD19.7/1k pcs, while the utilisation rate improved to 60% in 4QFY24, up from 45% in 3QFY24 based on a total annual capacity of 60bn pcs.

• Net loss has narrowed to RM3.6m in 4QFY24, compared to RM463.1m in 4QFY23. Excluding non-core items, 4QFY24 core net loss stood at RM42.6m (+33.8 YoY). We observed a 13% rise in natural latex prices due to adverse weather conditions, while nitrile latex prices declined 2% in Oct 2024. The weakening of USD against MYR in Aug 2024 resulted in a total of RM26m realized and unrealized foreign exchange losses.

• Outlook. We recognize that the recent depreciation of the USD against the ringgit continues to pose challenges, despite Top Glove’s upward adjustment of prices by USD1-2/1k pcs for orders beginning in Nov 2024. The impact of the weaker USD is expected to be more pronounced in 1QFY25. Nonetheless, Top Glove remains on track to expand its production capacity by 6.7% to 64bn pieces annually positions the company to capitalise on rising sales volumes, driven by the shift of US orders to Malaysian manufacturers amidst regulatory challenges faced by China and the forthcoming 50% tariff hike. We cut our FY25-26F earnings forecasts by 6-24% after accounting for a lower ringgit-denominated revenue, which partly mitigated by a c.50-60% USD-denominated total costs and higher utilisation rate.

Source: PublicInvest Research - 11 Oct 2024