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Broker's take: AmInvestment Bank raises target price, maintains 'hold' on Top Glove on lower tax outlook

AMINVESTMENT Bank has maintained a "hold" on Top Glove and raised its target price to RM6.36 from RM6.22 amid a lowered effective tax rate to 15 per cent from 18 per cent and strong global glove demand.

The current share price has already priced in Top Glove's fundamentals, says AmInvestment Bank.

Revenue for Top Glove in FY2018 is primed to grow by 15 per cent on the back of a 13 per cent increase in output volume due to two factories coming online, says the broker. These factories will add 7.8 billion gloves per annum, bringing total 2018 production capacity to 59.7 billion gloves.

An additional condom plant will begin production next year, with a target of 20 production lines within two years and the ability to produce one billion condoms per annum.

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AmInvestment Bank believes global glove demand will remain healthy with an annual growth rate of 8 to 10 per cent.

Effective tax rates will stay around 15 per cent in FY2018-2020, says the broker, and Top Glove will be able to "sustain the low effective tax rate through the availability of R&D tax incentives, utilisation of unutilised allowance and internal tax planning", even with the Malaysian government's withdrawal of the reinvestment allowance in 2019.

Top Glove's management issued guidance for RM300 million (S$96,000) in capital expenditure (capex) in FY2018, reduced from to RM447.1 million in FY2017.

The company's shares have seen a 52-week high of RM6.47 and low of RM4.56.

On the Singapore Exchange on Thursday, Top Glove's shares were trading up 2.53 per cent at S$2.03 per share, as at 9.25am.