Brokers’ take: CGS-CIMB halves Top Glove target price, expects sustained weakness

ANALYSTS have cut their target price on Top Glove Corporation after the Malaysian glove maker on Tuesday (Sep 20) posted its first quarterly loss since listing amid rising cost pressures and a pullback in demand.

In a report on the same day, CGS-CIMB shaved its target price on the counter by half to RM0.50 from RM1, after lowering its earnings per share estimates for FY2023-24 by 60-86.5 per cent to account for lower-than-expected sales volume and weaker average selling prices (ASPs).

Its new target price implies a potential downside of 23.1 per cent from Top Glove's last Bursa trading price of RM0.65 as at 3.27 pm on Tuesday. Shares of Top Glove were trading 7.8 per cent or RM0.055 lower at the time. The research team has reiterated its "reduce" call on Top Glove as it believes current valuations have yet to account for the company's weak near-term earnings prospects.

CGS-CIMB is also projecting a 90 per cent year-on-year dip in core net profit for Top Glove's FY2023 results, assuming an ASP of US$19 per 1,000 pieces and a utilisation rate of 50 per cent. It estimates the supply glut in the global glove sector to only ease near the second half of 2023.

Meanwhile, UOB Kay Hian (UOBKH) has cut its target price on Top Glove to RM0.76 from RM0.95, implying a potential upside of 16.9 per cent. This was derived from a price-to-earnings (PE) ratio of 31.4 times for FY2023, or 1.5 standard deviations above Top Glove's 5-year PE mean.

The drop in target price also comes as the research team slashes its earnings estimates for FY2023 and FY2024 by 74 per cent and 8 per cent respectively, owing to lower ASP assumptions. That being said, it believes Top Glove should "well weather the downcycle in the industry".

"Its balance sheet is robust, with a net cash position of RM551 million (S$169.2 million) (0.07 sen per share) and a gearing position of 0.06 time," said UOBKH analyst Philip Wong.

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