ASP outlook remains challenging

Hit by lower ASP and sales volume

TOPG’s 1QFY22 net profit of MYR186m was below our and consensus full-year estimates. Management expects ASP to continue falling but at a slower pace. It remains cautious and will defer some of the expansion plans. We lower our FY22/23/24 EPS forecasts by -27%/-5%/-4%. We now value TOPG at MYR1.61 on an unchanged 12.7x CY23 PER. SELL.

Results below expectations

1QFY8/22 net profit of MYR186m (-92% YoY, -59% QoQ) accounted for 15%/11% of our and consensus full-year estimates. We attribute the weaker-than-expected earnings performance to lower-than-expected
sales volume and utilisation rate as well as ASP. Also, the earnings gap was caused by the inclusion of prosperity tax in 1QFY22. A first interim DPS of 1.2sen has been declared (-93% YoY) in 1QFY22.

Highlights from 1QFY22 concall

1QFY22 revenue declined by -24% QoQ, -67% YoY on: i) lower sales volume (-0.4% QoQ, -34% YoY%) especially for nitrile and vinyl gloves due to rising competition, ii) lower blended ASP of USD32/k pcs (-33% QoQ; vs. our ASP assumption of USD34/k pcs for 1QFY22) and iii) lower utilisation rate of 55%. Lower utilisation rate and steeper decline in ASP versus raw material costs have led to lower EBITDA margin of 21% (-49ppt YoY, -12ppt QoQ). TOPG expects ASP to continue to fall but at a slower pace. The impact of falling ASP will however be cushioned by higher sales volume with improving sales order from the USA and lower raw material prices (nitrile latex price has declined by 47% since Sep 2021).

Earnings adjustments

We lower our FY22/23/24 earnings forecasts by -26.7%/-4.6%/-4.1% to factor in: a) lower blended ASP -4%/-1%/-1% in FY22/23/24. We now assume FY22/FY23/FY24 ASP of USD24.4/21.2/21.2 per k pcs; and b) prosperity tax. We have not factored in additional number of shares of up to 794m from its Hong Kong listing, which is slated to be completed by early 22. The additional shares could dilute our EPS estimates by 9%.