Topglove's net profit jumped

Background

Topglove just announced its results for 3Q2009 ended 31/5/2009, where its net profit increased by 17% q-o-q or 62% y-o-y to RM42.2 million, while its turnover increased by 7.3% q-o-q or 4.4% y-o-y to RM372 million. The company attributed its better performance to "improvement in cost efficiency, product quality and product mix, and had maintained strong customer relationship to position itself as a market leader".



In press statement accompanying the release of the financial results, the company stated:

The group’s Factory 19, which has 16 new production lines, has started operation early this month. With a total of 355 glove production lines, its production capacity is 31.5 billion pieces a year.

It has also completed the construction of Factory 20 and will start installing 16 new production lines next month. The company said it targeted to complete the installation by February next year.

In addition, the construction of Factory 21 is scheduled to commence in August this year. All the three factories are located in Klang.

Below is the chart showing the steady growth in Topglove's top-line & bottom-line over the past 12 quarter.



Technical Outlook

As noted in an earlier post (here), Topglove has broken above its ascending triangle at RM6.20. With this breakout, I expect Topglove to continue its prior uptrend.


Chart: Topglove's daily chart as at 23/6/2009 (Source: Quickcharts)

Look at other rubber glove manufacturers

Based on the strong growth in Topglove's bottom-line as compared to its top-line, one may conclude that rubber glove manufacturers are enjoying better bargaining power due to demand outstripping supply. The additional plants & equipment coming on stream 9-12 months out may address the imbalance. Until then, many rubber glove manufacturers should report higher profit. You may want to look at other manufacturers in this sector.

Conclusion

Based on improving results & bullish technical outlook, Topglove is a trading BUY.