Top Glove Corporation (Top Glove) reported a net profit of RM5.5m in 1QFY25, compared to a net loss of RM57.7m in 1QFY24, mainly driven by a higher sales volume and ASPs. After stripping out non-operating items, 1QFY25 core net loss stood at RM21.9m (+64.4% YoY). The results came in below both our and consensus estimates. The discrepancy in our forecasts was mainly due to higher-than-expected operating costs. We maintain our FY25-27F earnings forecasts, as we foresee raw material prices to trend downward in 1HCY25, giving room for better margins. All told, we reiterate our Neutral call on Top Glove, with a higher TP of RM 1.20 as we roll over our valuation to CY26F BVPS, based on 2x BVPS (1-year historical PB multiple mean).

• Stronger sales volume. Top Glove's revenue grew by 6.1% QoQ to RM885.9m, driven by a 16% QoQ increase in sales volume in 1QFY25. The growth was mainly attributable to continuous stock replenishment across all regions especially from US orders ahead of the tariff hike on imports from China gloves. Top Glove's blended ASPs dropped slightly by 2% QoQ to USD19.3/1k pcs, while nitrile gloves ASPs was well sustained at USD18.4/1k pcs in 1QFY25. Meanwhile, Top Glove's utilisation rate improved to 66% in 1QFY25 based on a total annual capacity of 62bn pcs, up from 60% on 60bn pcs annual capacity in 4QFY24.
• Net profit. Top Glove reported a net profit of RM5.5m in 1QFY25, compared to a net loss of RM57.7m in 1QFY24. Excluding non-core items, 1QFY25 core net loss stood at RM21.9m (+64.4% YoY). We observed a mixed of trend in raw material prices, with natural latex prices increased 4% QoQ, while nitrile latex prices declined 3% QoQ in 1QFY25. PBT margin improved to 2.2% in 1QFY25, compared to 0.5% in 4QFY24, as the Group managed to increase sales orders for nitrile gloves by 21% QoQ, which offer higher margins.
• Outlook. Moving forward, Top Glove is on track to expand its production capacity by 6.7% to 64bn pieces annually, underpinned by a sequential improvement in sales volume. However, we remain cautious on the ASP trends going forward, as the anticipated decline in raw material prices in 1HCY25 could prompt the Group to maintain flat or marginally lower pricing to prioritise market share. Nevertheless, we believe this will be mitigated by a higher sales volume driven by the impending US tariff hike on China medical gloves effective on Jan 2025. All told, we reiterate our Neutral call on Top Glove.

Source: PublicInvest Research - 23 Dec 2024