Tuesday, September 22, 2020

Topglov: Exceptional Earnings in an Extraordinary Time

Result Update

On 17 September 2020 (last Thursday), Topglove announced a fantastic set of result for QE31/8/2020, where its revenue increased 161% due to "tremendous growth stemmed from a global surge in demand for gloves on the back of the COVID-19 pandemic". At the same time, its "Profit Before Tax and Profit After Tax surged by 2,095% to RM1.62 billion and 1,692% to RM1.33 billion respectively. Meanwhile, Sales Volume grew by 43% versus 4QFY2019".  

"Reflecting market demand, average selling prices (ASPs) were also adjusted upwards. The Group’s improved profit was also attributed to productivity enhancements which it continued to embark on, while the Group’s utilization levels which remained at close to 100% amplified production efficiency and reaped superior economies of scale. High utilization helped lower overheads significantly, notably the cost of labor and natural gas. Further contributing to the phenomenal results was Aspion with a Profit Before Tax of RM139.9 million, as the Group started to reap the fruits of its acquisition. The additional capacity provided also helped position Top Glove to meet the upturn in glove demand".

Table: Topglov's last 8 quarterly results

Like Supermx's result for QE30/6/2020 (here), Topglov's profit margins soared 3-4 folds. This extraordinarily high profit margins is not something that the company would want to trumpet about, probably because it would cause concern among its investors about profit normalization! 

Graph: Topglov's last 72 quarterly results

Business Outlook

Topglov's press release provides some guidance on its bullish outlook in the months ahead. To wit:

The outlook for the company and glove industry remains very promising. With COVID-19, Top Glove estimates that glove demand will grow by 20% per annum in 2020, 25% in 2021 and 15% post-COVID.

The Group’s monthly order book has seen a significant rise of about 150% from pre-COVID days while lead time (delivery) has gone up from about 40 days to as much as about 400 days presently. The exceptionally strong demand coupled with higher ASPs bodes well for the Group’s results in the coming quarters.


Topglov (closed at RM8.00 yesterday) is now trading at a trailing PE of 34 times (based on last 4 quarters' EPS of 23.44 sen). At this PE ratio - which is comparable to the multiple assigned by the market in 2019 - investors' perception on Topglov's future earnings is finely balanced between the anticipation for continued sales growth and the concern for the impending sales price (and profit margin) normalization. One of the reason for the scale-down of bullishness in the glove sector is undoubtedly the much-anticipated availability of vaccines for Covid-19 as early as the end of the year.

Technical Outlook

Topglov has peaked at RM9.76 in early August, and then it dropped below its intermediate uptrend line (SS) at RM8.70. A downtrend line (RR) can be drawn on the chart, which will provide resistance to cap any strong rally in weeks or months ahead.

Chart 1: Topglov's weekly chart as at Sep 22, 2020_12.30 (Source: Malaysiastock.biz)

Chart 2: Topglov's semi-log weekly chart as at Sep 22, 2020_11.30 (Source: Malaysiastock.biz)

As noted at the start, Topglov announced its result for QE31/8/2020 on 17 September 2020 (during the lunch break). What happened after the fantastic result was announced was something unexpected- the share price dropped sharply! It should be noted that after Supermx announced its equally fantastic result for QE30/6/2020 on 10 August 2020 (after the market close), its share price opened at higher at RM12.18 the following day and immediately corrected for the next 5 business days to close at RM8.34 on 17 August 2020. We have also observed immediate correction after the announcement of bonus issues for both Supermx and Topglov. These corrections, which followed after the announcement of good news, seem to suggest that there are big sellers waiting to sell into strength for both stocks. Until these sellers have cleared their position, the near term outlook for these stocks is likely to be mildly bearish.

Chart 3: Topglov's 15-min chart as at Sep 22, 2020_11.30 (Source: Malaysiastock.biz)


Based on outstanding financial performance, fairly attractive valuation (on a historical basis) and continued strong demand for its products (due to the persistent rise in Covid-19 cases), Topglov reminds a good stock for medium-term investment. The negative factors to be considered are the big sellers who may cap further rally in the share price and the anticipated arrival of vaccines for Covid-19.


I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

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