• Top Glove’s 1QFY25 results was below ours and consensus expectations

• 1QFY25 saw ASP increased by 3% QoQ to US$19–20/k pieces while utilisation rate at 60%, as Top Glove recommenced 4bn pieces of capacity

• Maintain HOLD rating with unchanged 12- month target price of RM1.44

Results below expectations

1QFY25 revenue increased 80% YoY to RM886m, driven by higher sales volume of 10bn pcs (+104% YoY) and c.3% YoY increase in average selling price (ASP) to US$19-20 (1QFY24: US$18-19). EBITDA margin rose 5ppts YoY reflecting better operating efficiencies from the higher demand. Despite the higher revenue, after stripping out RM9m unrealised forex gains, 1QFY25 core net loss came in at RM3.6m, narrowing from a loss of RM59m in 1QFY24.

1QFY25 sales volume rose 16% QoQ; ASP by c.3% higher at US$19-20

Sequential revenue rose 6% QoQ to RM886m in 1QFY25, lifted by higher sales volume (+16% QoQ; 10.2bn pieces) and ASP (+c.3% QoQ; US$19-20). EBITDA margin expanded 7ppts QoQ on better operating leverage, as sales volume was boosted by customers’ replenishment activities. The plant utilization rate was flat at c.60% in 1QFY25 due to recommencement of production capacity of 4bn pieces, with total active capacity now at 64bn pieces (from 60bn pieces) annually. Nevertheless, management plans to increase capacity by another 6bn pieces in FY25E to cater for increased order. Additionally, we understand that customers remain receptive to price hike, with ASP guided to increase to US$21-22 per 1000 pieces in FY25E. Orders from US now contributes 18% to total orders (4QFY24: c.16%), reflecting growing demand for Malaysian gloves as the upcoming increase in US tariffs on China- imported gloves, effective Jan25, begins to take effect. All in, we expect stronger sequential earnings to be supported by a stabilizing US$, coupled with improved sales volume and ASP (3-5% QoQ; US$20-21 per 1000 pieces).

Maintain HOLD with unchanged target price of RM1.44

We cut our FY25–26E earnings by 11-28% to account for the impact of a stronger RM. We maintain our Hold rating with unchanged TP of RM1.44 based on 2.0x FY25 P/BV (at +1SD of its 3-year P/B). Despite the earnings cut, we expect Top Glove to return to profitability in the upcoming quarters amidst the ongoing improved sales volume and ASP, benefiting from the US tariff hike on China glovemakers. Upside/downside risks: stronger/weaker sales momentum and ASP, rise in raw material costs, and China glovemakers ramping up capacity.

Source: Philip Capital Research - 23 Dec 2024