Brokers’ take: Analysts cut Top Glove target prices after earnings disappoint

ANALYSTS on Friday (Jun 10) cut their target prices on Top Glove : BVA 0% after the dual-listed glove maker’s results missed expectations.

The group on Thursday posted a 99.3 per cent drop in its third-quarter net profit to RM15.3 million (S$4.8 million) from RM2 billion in the corresponding quarter last year. This was mainly due to normalisation in demand and average selling prices (ASPs) for rubber gloves, as well as rising cost pressures.

UOB Kay Hian (UOBKH) has cautioned that Top Glove may drop out of the FTSE Bursa Malaysia KLCI in the next review, given the decline in market capitalisation.

It maintains its “hold” call on the counter but lowered its target price to RM1.15 from RM1.50. UOBKH’s new target price is 23.5 times its FY2023 earnings estimates.

It also implies a potential upside of 2.7 per cent from the counter’s Friday trading price of RM1.12 as at 4.14 pm. Top Glove was trading 7.4 per cent or RM0.09 lower on Bursa Malaysia at the time.

On the Singapore bourse, the company was trading 7.8 per cent or S$0.03 lower at S$0.355 as at 4.28 pm on the same day.

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Separately, CGS-CIMB trimmed its target price on Top Glove to RM1 from RM1.30, implying a potential downside of 10.7 per cent. The new target price is also 24 times CGS-CIMB’s earnings estimates for the 2023 calendar year.

The research team, which maintained its “reduce” call, had lowered its FY2022-24 earnings per share (EPS) forecasts to account for lower sales volumes and a decline in ASPs.

In a similar vein, UOBKH cut its estimates for FY2022 by 34 per cent and 57 per cent for FY2023 and FY2024 on lower ASP assumptions.

Analysts from both research houses were mixed on whether incoming headwinds for Top Glove have been priced in.

CGS-CIMB believes the worst is not over as current valuations – which imply a 77 per cent premium to its 5-year mean – have yet to account for further downside to its earnings. The operating environment also remains weak.

Meanwhile, UOBKH holds the view that much of the downside has been priced in, amid an industry down cycle. However, it does not rule out further disappointment given “lofty consensus estimates, potential deferred capacity, and dampened utilisation rates”.