PP 7767/09/2010(025354)

17 June 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
MARKET DATELINE Company No: 233327 -M

R e su l ts N o t e 17 June 2010

Share Price : RM12.86

Top Glove Corporation Fair Value

Recom
:
:
RM16.40
Outperform
No Surprises (Maintained)

Table 1 : Investment Statistics (TOPGLOV; Code: 7113) Bloomberg: TOPG MK

Net Core Net
FYE Turnover profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE GDY
Aug (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009 1,529.1 169.1 57.3 57.3 54.2 22.4 - 4.9 net cash 22.6 2.3
2010f 2,062.3 262.7 89.0 89.0 55.3 14.4 88.0 4.0 net cash 28.7 3.5
2011f 2,342.1 283.8 96.2 96.2 8.1 13.4 96.0 3.4 net cash 26.0 3.6
2012f 2,648.1 300.6 101.9 101.9 5.9 12.6 102.0 2.9 net cash 23.6 3.9
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC # Excludes EI * Consensus Based On IBES

RHBRI Vs. Consensus

Within expectations. Top Gloves 3QFY08/10 net profit of RM64.5m Above
(+52.9% yoy; -8.6% qoq) was within our and consensus expectations with In Line
9M net profit of RM200.2m (+78.3% yoy) accounting for 76% of our and Below
consensus full-year estimates respectively.
Issued Capital (m shares) 308.4
Qoq, revenue grew 9.0% but 3Q earnings fell 8.6% qoq. Qoq, Market Cap(RMm) 3,966.6
revenue grew 9.0% as a result of: 1) upward adjustments made to selling Daily Trading Vol (m shs) 0.7
52wk Price Range (RM) 6.07-14.00
prices (+10% qoq) to pass on the higher latex cost and weakening US$;
Major Shareholders: (%)
and 2) slightly higher sales volume with F20 commencing operations
Tan Sri Dr Lim & family 38.6
during the quarter. 3Q10 net profit, however, fell 8.6% qoq due to margin
Overlook Partners Fund 5.0
contraction resulting from the time lag in passing on the higher latex price Matthews International 5.2
(+13.3% qoq) and weaker US$ (-4.3% qoq), partly cushioned by a lower
effective tax rate of 21.5% (vs. 23%) in 2Q10. FYE Aug FY10 FY11 FY12
EPS chg (%) - - -
Dividend declared. Top Glove declared a tax-exempt DPS of 14 sen Var to Cons (%) 1.2 0.2 (0.1)
(3Q09: 7 sen TE), which translates to a net yield of 1.1%. We have
PE Band Chart
projected full-year TE DPS of 34 sen, which implies a net payout ratio of
39.3% (FY09: 39.5%) and net yield of 2.6%.

Cash pile of RM283.8m as at end-May. Top Gloves cash pile stood at PER
PER
=
=
25x
20x
RM283.8m (vs. RM277.7m as at end-Feb) while its net cash position grew PER = 15x
PER = 10x
further to RM273.0m (17.7 sen/share) as at end-May from RM269.8m
(17.6 sen/share) as end-Feb. Management had previously indicated that
they intend to maintain the dividend payout ratio of 40% while conserving
cash for growth either via organically or M&A.
Relative Performance To FBM KLCI
Risks. The risks include: 1) sharp surge in raw material (latex) and/or
energy (natural gas) prices, which may result in margin squeeze; 2) an Top Glove
appreciating RM against the US$; 3) execution risk from capacity
expansion; and 4) weaker-than-expected results from overseas operations.

Forecasts. We have left our FY10-12 earnings forecasts unchanged for

now. FBM KLCI

Investment case. Our fair value has been raised to RM16.40 (from
RM15.50) based on target FY11 PER of 17x as we roll forward our
valuation year (from CY10). No change to our Outperform call on the
stock. David Chong, CFA
(603) 9280 2179
david.chong@rhb.com.my

Please read important disclosures at the end of this report.

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 17 June 2010

Table 2: Quarterly Results

QoQ YoY YoY
FYE Aug (RMm) 3Q09 2Q10 3Q10 9MFY09 9MFY10 Comments
(%) (%) (%)
Revenue 372.0 509.9 555.9 9.0 49.4 1,104.6 1,538.0 39.2 Yoy growth largely driven by
additional capacity from F19 & F20,
which helped meet the rising
demand. Qoq growth due to
upward adjustments made to
selling prices and higher sales
volume as additional capacity from
F20 came onstream.

EBITDA 71.9 109.8 97.7 (11.0) 35.9 193.5 309.4 59.9 Stronger 9M growth mainly due to
margin expansion resulting from
better economies of scale.
Depreciation (15.3) (14.9) (14.5) (2.8) (5.5) (43.0) (44.0) 2.3
Operating profit 56.6 94.9 83.3 (12.3) 47.1 150.5 265.4 76.4
Interest expense (2.0) (0.1) (0.1) 32.9 (95.0) (7.1) (0.6) (91.9) Total debt as at end-3Q10 was
RM10.9m against RM7.9m as at
end-2Q10 and RM90m as at end-
3Q09.
Associates (0.2) (1.0) 0.2 >100 >100 (0.9) (1.0) 9.5 Mainly relates to Medi-Flexs share
of associates losses.
Pre-tax profit 54.3 93.9 83.3 (11.2) 53.3 142.5 263.9 85.1
Tax (12.0) (21.6) (17.9) (17.0) 50.0 (29.5) (59.7) >100
Minority interest (0.2) (1.7) (0.9) (48.3) >100 (0.8) (4.0) >100
Net profit 42.2 70.5 64.5 (8.6) 52.9 112.3 200.2 78.3

Margins (%)
EBITDA 19.3 21.5 17.6 17.5 20.1 Qoq margin contraction due to time
lag in passing on higher latex cost
(+13.3% qoq) and weakening US$
(-4.3% qoq).
Operating profit 15.2 18.6 15.0 13.6 17.3
Pre-tax 14.6 18.4 15.0 12.9 17.2
Effective tax rate 22.0 23.0 21.5 20.7 22.6 3Q10 effective tax rate remains
below statutory rate due to
reinvestment allowances and tax-
free status of certain overseas
subsidiaries.
Net profit 11.3 13.8 11.6 10.2 13.0

Segmental revenue
Malaysia 308.6 415.3 443.9 6.9 43.9 876.1 1,247.0 42.3
Thailand 30.6 47.2 58.9 24.8 92.3 90.2 149.2 65.4
China 15.3 22.3 23.0 3.3 50.5 79.3 64.9 (18.2) Lower yoy due to weaker demand
for vinyl gloves, which have yet to
pick up.
Others 17.5 25.1 30.1 19.6 72.1 58.9 77.0 30.7
372.0 509.9 555.9 9.0 49.4 1,104.6 1,538.0 39.2

EBITDA
Malaysia 54.0 94.6 89.5 (5.4) 65.8 147.4 270.4 83.4
Thailand 13.0 13.7 11.3 (17.3) (13.2) 32.9 38.4 16.7
China 4.8 1.0 (2.6) >100 >100 11.7 0.3 (97.4)
Others 0.1 0.5 (0.5) >100 >100 1.5 0.3 (78.1)
71.9 109.8 97.7 (11.0) 35.9 193.5 309.4 59.9

EBITDA profit margin (%)

Malaysia 17.5 22.8 20.2 16.7 21.7
Thailand 42.5 28.9 19.2 36.5 25.7
China 31.1 4.6 (11.1) 14.7 0.5 9M lower due to lower revenue
Others 0.8 2.1 (1.8) 2.6 0.4

Source: Company, RHBRI

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 17 June 2010

Table 3: Earnings Forecasts Table 4: Forecast Assumptions

FYE Aug (RMm) FY09a FY10F FY11F FY12F FYE Aug FY10F FY11F FY12F

Turnover 1,529.1 2,062.3 2,342.1 2,648.1 Capacity (bn pcs p.a.) 34.4 39.9 41.8
Turnover growth (%) 54.0 34.9 13.6 13.1 Capacity utilisation (%) 85.0 85.0 90.0
Change in ASP (%) 0.1 1.0 1.0
EBITDA 288.5 410.8 443.2 470.9
EBITDA margin (%) 18.9 19.9 18.9 17.8

Depreciation (57.0) (61.1) (66.3) (72.8)

EBIT 231.5 349.7 376.9 398.1

EBIT margin (%) 15.1 17.0 16.1 15.0
Net Interest (8.5) (1.6) (1.8) (1.8)
Associates (1.0) 0.0 1.0 2.0

Pretax Profit 222.0 348.1 376.1 398.4

Tax (53.9) (80.1) (86.5) (91.6)
Minorities 1.1 (5.4) (5.8) (6.1)
Net Profit 169.1 262.7 283.8 300.6
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of
persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy
will depend on an investors individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability
for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the RHB Group) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities
or loans of any company that may be involved in this transaction.

Connected Persons means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the Connected Persons are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRIs previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the Connected Persons, including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher
risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities,
subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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