Record-low quarterly profits from weak ASP
? 9MFY8/22 core net profit was below expectations, declining 96% yoy to
RM287m (63% of our and 55% of Bloomberg consensus full-year estimates).
? Despite a potential uptick in ASPs, we foresee weaker qoq results due to
margin compression from higher operating costs and increase in input costs.
? Maintain Reduce, with a lower TP of RM1.00 (24x CY23F P/E).
9MFY8/22 core net profit declined 96.1% yoy; below expectations
9MFY8/22 core net profit came in at RM287.3m (-96.1% yoy); below expectations at 63%
of our and 55% of Bloomberg consensus FY22 estimates. This was owing to weaker-thanexpected results in 3QFY8/22 core net profit of RM15.3m (-82.4% qoq) from: i) decline in
ASPs (-5% qoq), ii) higher costs and iii) weaker-than-expected qoq growth in sales volume
(+6% qoq vs. earlier expectations of +12% qoq). 3QFY22 EBITDA margins also slipped
4.6% pts qoq to 8.6%, as a result of margin compression (lower ASPs despite higher input
costs). No dividend was declared in the quarter, within expectations.
Demand normalisation and aggressive capacity build-up
9MFY22 revenue dipped 68.5% yoy due to declines in sales volume (-25% yoy) and ASPs
(-61% yoy). This was a result of normalisation of Covid-19 demand, as customer purchases
slowed down, while we see aggressive capacity build-up in the global glove sector. This
led to 9MFY22 EBITDA margins waning 53.9% pts yoy to 14.5%, while 9MFY22 net profit
slipped 96.1% yoy to RM287.3m.
ASPs will likely bottom in 4QFY8/22F, in our view
In our view, TOPG’s ASP has likely bottomed in 4QFY22F (we expect a 5% qoq decline)
at US$22 per 1k pieces. Yet, we believe this does not indicate that sector supply-demand
dynamics improved as customers are keeping low inventory levels (slower buying patterns)
while new capacity is still aggressively added in the sector. We believe this is due to recent
cost hikes, and expect lower margins in near-term despite a pick-up in sales going forward.
Deferment of capex plans, in view of a weak operating environment
In view of the current weak operating environment, TOPG will defer the commissioning of
new capacity. In its 3QFY22 briefing, TOPG stated that it will not be adding new capacity
in 2022, though it aims to grow capacity by an average of 12.1% yoy per annum by Dec 25. Also, TOPG did not discount further slowdowns in its expansion plans. In our view, this
is positive given: i) the current supply-led dynamics in the glove sector and ii) TOPG has
sufficient capacity to cater to any surge in demand (~50-55% utilisation rate in 3QFY22).
Maintain Reduce, with a lower TP of RM1.00 (24x CY23F P/E)
We lower FY22-24F EPS forecasts to account for lower sales volume and decline in ASPs.
In tandem with our EPS cuts, our TP drops to RM1.00 (24x CY23F P/E), while we keep
our Reduce call. In our view, the worst is not over for TOPG as we believe current
valuations (77% premium to 5-year mean) have yet to account for further downside to its
earnings, while the operating environment remains weak.