MALAYSIA

INVESTMENT RESEARCH REPORT

JF APEX SECURITIES BERHAD
(47680-X)

Company Result 20 December 2017

Top Glove Corporation Berhad BUY
A Strong Start Maintained

Share Price RM 7.48 Result

Target Price RM 8.20  Top Glove Corporation Berhad (Top Glove) reported a
net profit of RM105.4m for its 1QFY18. The quarterly net
Company Description
earnings improved by 6.9% QoQ while surged by 43.8% YoY.
The Group manufactures a wide range of Meanwhile, revenue stood at RM938.1m, up 4.0% QoQ and
latex gloves. The Company's products include 19.4% YoY.
latex examination powdered, latex
examination powderfree, nitrile examination  A strong start of the year with result meeting
gloves, soft nitrile examination gloves, vinyl expectations. The result was within our expectation (26.6%
examination gloves, surgical gloves, and of our full year earnings estimate) and consensus (26.8% of
others market earnings).
Comment
Stock Data
Bursa / Bloomberg code 7113 / TOPG MK
 Better earnings QoQ. The Group recorded higher earnings
Board / Sector Main / Industrial for 1QFY18 against 4QFY17 by 6.9%. The better earnings
Syariah Compliant status Yes were due to increase in sales volume of 8% along with
Issued shares (m) 1254.22 improvement in product efficiency and quality with operating
Par Value (RM) 0.50 margin increased by 1.9ppts, coupled with capacity coming
Market cap. (RM’m) 9386.02 onstream and strong demand growth.
52-week price Range(RM) 4.56-7.48
Beta (against KLCI) -0.06  Stronger earnings YoY driven by higher topline….. As
3-m Average Daily Volume 3.17m compared to 1QFY17, the revenue was higher in 1QFY18,
3-m Average Daily Value^ RM20.40m representing an increase of 19.4%. The stellar performance
was mainly due increase in sales volume of 17% due to strong
Share Performance demand growth in developed and emerging markets. Besides,
1m 3m 12m China’s district enforcement against polluting industries which
Absolute (%) 11.0 34.8 44.4 benefited both natural and nitrile gloves.
Relative (%-pts) 10.0 40.1 35.9
 ……..and improved margins. Besides, the Group reported a
Major Shareholders % higher operating profit margin, +1.4ppts, mainly contributed
Lim Wee Chai 29.39 by continuous improvement initiatives in terms of automation,
EPF 5.86 better production and cost saving.
Firstway United Corp 5.12
Estimated Free Float 48.86  Continuous expansion to accommodate rising demand.
The Group will continue to build 1 to 2 factories. Its current
plans for expansion include construction of 2 new
manufacturing facilities, i.e. Factory 31 in May 2018, and
Historical Chart
8.00
Factory 32 in December 2018.
7.50
 Improving productivity. Upon completion of Factory 31 and
7.00
Factory 32, it is expected boost the Group’s total production
6.50
line by additional 78 lines and a production capacity of 7.8
billion gloves per annum.
6.00

5.50

5.00  Update on new business venture. The Group’s condom

4.50 manufacturing facilities are expected to commerce operation in
4.00
Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17
June 2018. Top Glove targets to produce 1 billion pieces of
condom within 2 years.
Source: Bloomberg
 Product expansion. The Group will emerge as the world’s
Siau Li Shen largest manufacturer of surgical gloves upon completion of
03-87361118, ext. 753 acquisition of Aspion Sdn Bhd wit targeted PAT of at least
RM80m/year. Thus, we anticipate Top Glove’s net profit for
research.dept@jfapex.com.my
FY19F to increase by 11% on the assumptions of 70:30 debt

Please read carefully the important disclosures at end of this publication

20 Dec 2017 Company Result – Top Glove Corporation Berhad JF APEX SECURITIES

to equity ratio and interest costs of 2.5% on its USD

borrowings for the acquisition.
 Positive outlook. We believe that the Group could achieve
better sales volume for the coming year thanks to China’s
district enforcement against polluting industries and upon
completion of acquisition of Aspion Sdn Bhd.
 Risks include: 1) increasing minimum wages. With the rising
automation, we believe the negative impact would be minimal
to the Group, 2) rising cost especially on latex, 3)
strengthening of MYR against USD, and 4) further hike in
natural gas tariff. However, we opine that the Group is able to
pass on the higher costs of production and factor of
unfavourable forex to the customers accordingly in view of
current demand outstrips supply.
Earnings Outlook/Revision
 We retain our earnings forecast for FY18F and FY19F
pending finalization of the deal to acquire Aspion Sdn Bhd.
Valuation & Recommendation
 Maintain BUY with a higher target price of RM8.20
(previous target price of RM7.60) after we roll over our
valuation to FY19F and ascribe higher PE ratio of 23.4x (from
21.7x) which is at its upcycle valuation to better reflect the full
earnings impact of the acquisition of Aspion Sdn Bhd and track
its PE discount to its peer, Hartalega in which its share price
has been on uptrend recently.
 Overall, we favour Top Glove for its: 1) strong earnings
growth trajectory backed by brighter demand outlook, 2)
margin enhancement with the surgical gloves come on stream
and anticipated higher economies of scale after the
acquisition, and 3) further expansion of its existing product
range by adopting technology and innovations of Aspion Sdn
Bhd to penetrate untapped markets.

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20 Dec 2017 Company Result – Top Glove Corporation Berhad JF APEX SECURITIES

Quarterly Figures
Year ending 31 August 1QFY18 4QFY17 1QFY17 QoQ YoY
RMm RMm RMm % %
Revenue 938.1 902.4 785.6 4.0% 19.4%
Operating profit 122.9 101.4 91.8 21.2% 33.9%
PBT 122.0 99.1 89.8 23.1% 35.9%
PAT 105.9 98.2 73.6 7.9% 43.9%
Net profit 105.4 98.6 73.3 6.9% 43.8%
Margin (%) ppts ppts
Operating margin 13.1% 11.2% 11.7% 1.9 1.4
PBT margin 13.0% 11.0% 11.4% 2 1.6
PAT margin 11.3% 10.9% 9.4% 0.4 1.9
Net profit margin 11.2% 10.9% 9.3% 0.3 1.9
Source: Company, JF Apex

Financial Summary
Year ended 31 Aug FY15 FY16 FY17 FY18F FY19F
RMm RMm RMm RMm RMm
Revenue 2,510.5 2,888.5 3,409.2 3,904.4 4,259.7
Gross profit 554.9 595.6 659.7 677.3 733.0
PBT 363.5 442.2 383.1 477.2 529.7
PAT 281.2 362.4 332.6 396.1 439.6
Net Profit 279.8 360.7 332.7 396.1 439.6
Gross profit margin (%) 22.1% 20.6% 19.4% 17.3% 17.2%
PBT margin (%) 14.5% 15.3% 11.2% 12.2% 12.4%
PAT margin (%) 11.2% 12.5% 9.8% 10.1% 10.3%
Revenue growth (%) 44.7% 15.1% 18.0% 14.5% 9.1%
Gross Profit growth (%) 44.7% 7.3% 10.8% 2.7% 8.2%
PBT growth (%) 68.1% 21.6% -13.4% 24.6% 11.0%
PAT growth (%) 53.2% 28.9% -8.2% 19.1% 11.0%
ROA 10.4% 13.7% 11.3% 12.6% 12.6%
ROE 17.3% 19.8% 16.5% 18.6% 18.4%
EPS (sen) 22.4 28.9 26.5 31.6 35.1
P/E 26.81 20.80 22.67 19.03 17.15
DPS (sen) 11.5 14.5 14.5 14.5 14.5
Dividend Payout 51% 50% 54.6% 54.6% 54.6%
Dividend yield (%) 2.0% 2.6% 2.4% 2.4% 2.4%
Source: Company, JF Apex

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20 Dec 2017 Company Result – Top Glove Corporation Berhad JF APEX SECURITIES

JF APEX SECURITIES BERHAD – CONTACT LIST

JF APEX SECURITIES BHD DEALING TEAM RESEARCH TEAM

Head Office: Head Office: Head Office:

6th Floor, Menara Apex Kong Ming Ming (ext 3237) Lee Chung Cheng (ext 758)
Off Jalan Semenyih Shirley Chang (ext 3211) Lee Cherng Wee (ext 759)
Bukit Mewah Norisam Bojo (ext 3233) Low Zy Jing (ext 754)
43000 Kajang Nursuhaiza Binti Hashim (ext 752)
Selangor Darul Ehsan Siau Li Shen (ext 753)
Malaysia Institutional Dealing Team:
Fathul Rahman Buyong (ext 741)
General Line: (603) 8736 1118 Ahmad Mansor (ext 744)
Facsimile: (603) 8737 4532 Zairul Azman (ext 746)

PJ Office: PJ Office:
15th Floor, Menara Choy Fook On Mervyn Wong (ext 363)
No. 1B, Jalan Yong Shook Lin Azfar Bin Abdul Aziz (Ext 822)
46050 Petaling Jaya Tan Heng Cheong (Ext 111)
Selangor Darul Ehsan
Malaysia

General Line: (603) 7620 1118

Facsimile: (603) 7620 6388

JF APEX SECURITIES - RESEARCH RECOMMENDATION FRAMEWORK

STOCK RECOMMENDATIONS
BUY : The stock’s total returns* are expected to exceed 10% within the next 12 months.
HOLD : The stock’s total returns* are expected to be within +10% to – 10% within the next 12 months.
SELL : The stock’s total returns* are expected to be below -10% within the next 12 months.
TRADING BUY : The stock’s total returns* are expected to exceed 10% within the next 3 months.
TRADING SELL : The stock’s total returns* are expected to be below -10% within the next 3 months.
SECTOR RECOMMENDATIONS
OVERWEIGHT : The industry as defined by the analyst is expected to exceed 10% within the next 12 months.
MARKETWEIGHT : The industry as defined by the analyst is expected to be within +10% to – 10% within the next 12 months.
UNDERWEIGHT : The industry as defined by the analyst, is expected to be below -10% within the next 12 months.
*capital gain + dividend yield

JF APEX SECURITIES BERHAD – DISCLAIMER

Disclaimer: The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written
consent of JF Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is
not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of JF
Apex Securities Berhad and are subject to change without notice. JF Apex Securities Berhad has no obligation to update, modify or amend this
report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth
herein, changes or subsequently becomes inaccurate.

JF Apex Securities Berhad 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 JF Apex Securities Berhad. JF Apex Securities Berhad may from time to
time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written
approval of JF Apex Securities Berhad.

Published & Printed By:

JF Apex Securities Berhad (47680-X)
(A Participating Organisation of Bursa Malaysia Securities Berhad)