Topglove's results justified its high share price

Results Update

Topglove has just announced its results for 3Q2009 ended 31/8/2009. Its net profit increased by 35% q-o-q or 126% y-o-y to RM56.8 million while turnover increased by 15% q-o-q or 17% y-o-y to RM427 million.


Table 1: Topglove's 8 quarterly results

The improved bottom-line is attributable to higher sales and higher pre-tax profit margin, which increased to 18.5% in 3Q2009 from 14.6% in 2Q2009 or 10.4% in 3Q2008. For a good idea of Topglove's past 9 years' performance, see Table 2 below. I have also appended a chart showing Topglove's last 13 quarters' track record which shows the growth rate of its top-line & bottom-line are accelerating.


Table 2: Topglove's 9 yearly results


Chart 1: Topglove's 13 quarterly results

Valuation

Topglove (closed at RM8.23 today) is now trading at a trailing PE of 14.4 times (based on last 4 quarters' EPS of 57 sen). We can also compute its Price/Earnings To Growth ('PEG') ratio using the top-line growth rate of about 12% over the past 3 years (instead of bottom-line growth rate) and a dividend yield of 1.9% today [based on total dividend of 16 sen (excluding special dividend of 6 sen) for FY2009]. Topglove's PEG ratio is about 1.04 times. While a PEG ratio of less than 1 means that the stock is attractive, Topglove's present PEG ratio is not excessive despite its recent strong run-up.

The computation of PEG ratio is carried out as follows:

PEG ratio = PE / (Growth Estimate + Dividend Yield)
= 14.4 / (12 + 1.9)
= 1.04 times

Technical Outlook

From the chart below, we can see that Topglove's next resistance is at the horizontal line of RM8.50. It is possible that Topglove may re-test its all-time high at RM10.00 recorded in Dec 2006.


Chart 2: Topglove's weekly chart as at Oct 9, 2009 (Source: Quickcharts)

Conclusion

Based on good results and bullish technical outlook, I believe Topglove's present rally may still continue.