By Kenanga Research
15 June 2012
Period 3QFY12/9MFY12
Actual vs. Expectations
Above ours and the consensus’ expectations.
The 9MFY12 net profit already made up 91% and 85% of ours and the consensus’ forecasts of RM152.3m and RM164.2m respectively.
Dividends A first single tier interim dividend of 7 sen was declared. This was 40% higher than last year’s interim dividend of 5 sen, translating into a net interim dividend yield of 1.1%.
Key Result Highlights
QoQ, the EBITDA margin fell slightly from 14% to 13% while earnings increased also slightly by 1%. This was mainly attributable to the higher average latex cost, which increased by 10% QoQ to RM7.52/kg.
YoY, the turnover increased by 13%. Apart from the higher average selling price (“ASP”) YoY, the sales volume has also increased by 8% due to stronger demand from customers.
The strong demand is mainly due to customers taking advantage of the lower ASP as compared to last year, where it peaked at USD39 per thousand pieces as opposed to low USD30’s per thousand pieces during the quarter.
Earnings almost doubled as the EBITDA margin improved from 9% to 13%. The higher margins were mainly due to lower latex costs, which had dropped by 14% YoY (from RM10.11/kg in 9MFY11).
Outlook We are in the midst of reviewing our Neutral call on the overall sector as we are looking to upgrade it in view of the likely lower latex price going forward as well as the potential appreciation of the USD/MYR, which would significantly improve the industry’s margins.
With that in mind, coupled with the company’s stronger-than-expected results performance, we are raising our estimates as well as rating and target price on Topglove (see below).
Change to Forecasts
We have boosted our FY12-13E earnings by 33-34% to RM202.5-229.8m as we revised our USD/MYR assumption from RM2.85/MYR to RM3.09/MYR.
Rating UPGRADE to OUTPERFORM
We are upgrading our rating to OUTPERFORM from MARKET PERFORM as the current share price now offers a 24% upside for the stock as measured against our TP of RM5.80.
Valuation We have raised our target price (TP) for the stock to RM5.80 from RM4.66 in tandem with the rise in our earnings forecasts. The TP is based on an unchanged targeted PER valuation of 17.7x on FY12 EPS.
Risks Higher latex price and a stronger ringgit against the US dollars.
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