Kenanga cuts earnings forecast on Top Glove, lowers TP to RM4.50

KUALA LUMPUR: Kenanga research has cuts its FY19/FY20 earnings estimates for Top Glove Corp Bhd by 4% each given competitive pressure from low margin latex gloves.

The research house maintained its market perform call on the counter but cut its target price from RM4.70 to RM4.50.

In its outlook, Kenanga said the robust demand for nitrile has led to longer delivery times although the competition in the latex segment could negatively impact latex gloves margins.

Due to the lag effect in passing cost through as a result of higher natural gas and raw material, it also expects Top Glove to raise average selling prices to contain high operating costs and put the brakes on further margin compression in subsequent quarters.

“Note that 3Q19’s sharp PBT margin erosion (-3.9% pts QoQ; -5.3% pts YoY) was due to price competition and delays in cost pass-through for natural gas and latex,” it said.

Top Glove is also embarking on more automation in production, which Kenanga estimates at 5% of its FY20 forecast earnings.

With regard to Aspion, the research house said it is improving but expects a flattish FY19 as the unit is unable to take full advantage of the strong surgical demand.

“All in, we still see low risk of Aspion’s related impairments,” it said.

Source: TheStar