Wednesday, October 06, 2010

Topglov- the Gloves Comes Off!

Results Update

Topglov has just announced its results for QE31/8/2010. Two things are worth noting immediately:
  1. its turnover dropped when compared to the immediate preceding quarter; and
  2. its net profit dropped for the second consecutive quarter.
The company attributed the poor performance to normalizing demand; higher latex prices; and weakening US dollar. The 'normalizing demand' was the same theme that I have written about for the past few quarters. However, the jury is still out as we have earlier noted the rebound in Adventa's profit which seems to promise a stop in the slide in the fortune amongst the glove producers. Alas, the present results of Topglov- the top glove producer in Malaysia and the world- is now staring at us. We must decide, whose results shall we take to represent the norm for the glove industry- Adventa or Topglov? I would go with Topglov's results.


Table: Topglov's last 8 quarterly results



Chart 1: Topglov's 17 quarterly results

Valuation

Topglov (closed at RM5.69 today) is now trading at a trailing PE of 14 times (based on its last 4 quarters' EPS of 40.7 sen). With earning sliding fast, the trailing PE may understate Topglov's PE multiple [or, make Topglov appear more attractive than it is (or will be)].

Technical Outlook

Topglov has rebounded from a recent intra-day low of RM4.98 recorded on September 23 to touch its 200-day SMA line (or equivalent to the 40-week SMA line) at RM5.75-5.80. Can it break above the 200-day SMA line? Not with this poor set of financial results!


Chart 2: Topglov's weekly chart as at Oct 6, 2010 (Source: Quickcharts)

Conclusion

Based on the poor financial results & negative technical outlook, I would rate Topglov a SELL.

22 comments:

tan said...

HI Alex,

What do you think about tp for tagb ? It keep on issuing ICULS, which i still do not understand what this is.

Hope you may give me some advise.

Thanks

KC said...

For All Groves counter is 1 thing in common, Low NTA , High shares Price.

eg Top Grove NTA is 1.80, market price now is 5.69.

You pay 3 times the NTA.

When music stop, the Dream of high Growth story ended.

The investor have to face the reality!

takeiteasy said...

Hi Alex,

I totally agree with you with regards to the gloves' counters share price valuation and their respective earnings.

Adventa's results are slightly better because they are specialized in a different targeted market segment which are surgical and dental. But most of the rest are mainly dealing in nitrile and rubber latexx gloves (meaning not specialized). Even glove companies in China & Thailand can compete and take away their market SHARE by offering cheaper selling prices. By on the performance of the gloves' counters' share prices (after Topgloves' results were announced today) only Latexx, Adventa and Kossan shown slight depreciation while Supermax and Harta continues to shoot up. Someone is clearly pulling and manipulating the prices behind the counters. I just hope more business analyst like yourselves would highlight these to the poor uncles and aunties investors out there to be extra careful so as not to be caught. If results are good, justifying a higher share price, by all means it is ok to push up the share prices as they are worth the price. But if it is push up to trap poor informed investors, it is therefore very seriously bad intention intended. For all we know, the prices for Supermax and Harta might just fall tomorrow, the day after or next week after these syndicates decide to exit after taking the poor investors for suckers. In fact, it was reported in the China Press paper on Sunday that there was a fire in Supermax factory on the 2nd October in Sungai Buloh where about 40 plus percent of the plant were damaged. However, sadly this was not reported by other news media or disputed or clarified by Supermax management. Either China Press is misreporting or what, I don't know. All I know was on Monday, Supermax's share prices just keep going up. In fact last year when Kossan's warehouse caught fire, it was duly reported by the news media, investors then took caution and waited for Kossan's management clarification before resuming their trading. I hope with injection of liquidity by foreign funds due to atrractive Ringgit value, these foreign fund managers don't take us local investors for suckers ..... Sorry for the long comment. Keep up the good work Alex !!! and keep REPORTING THE TRUTH !!!

David K said...

With regards to Supermax's fire breakout, CIMB has written quite an extensive piece on it. Worth taking a look to see the extent of the damage. As for the poor earnings of Top Glove, it was mainly due to the its high concentration towards natural rubber (NR) gloves which experienced high latex costs. The situation will be quite different with Latexx and Hartalega which diversified into Nitrile gloves which customers are switching into due to high costs of NR gloves. Therefore, I think Top Glove should experience the sharpest decline in earnings followed by Adventa, Supermax, Kossan, Latexx and finally Hartalega (the least affected).

steve said...
This comment has been removed by the author.
steve said...

Dear Alex,
I'd like to hear your comment on MMHE IPO.
And also, please advice if now is a good time to enter CI Holdings.
Thanks!

Ai Ling said...

Hi Alex,

Axiata and Digi, which one is better to add into investment portfolia?

Kind make me understand it.

Thanks

AL

takeiteasy said...

Hi Alex, good morning.

You see that's why I just like all these biz analysts. This morning Citigroup Ms. Fiona raised TopGlove to buy with T.P reduced from to 6.70 from 7.25. Who is she trying to kid??? Impossible??? Now, buy?? Even TopGlove management acknowledged difficult times ahead for about 6 months, capacity expansion might be delayed & industry consolidation would most likely occured. Here we have this lady with her bright & shiny outlook. Imagine investors going in now at 5.70 & above. Good luck to them. Unless she can back up her claims with herself purchasing TopGlove's shares at theses prices I think they should keep their opinion to themselves. Thank you.

takeiteasy said...

I think so far local biz analyst like RHB, HDBS, OSK and Amresearch other than C...B have been very fair, prudent and honest with their analyst and assessment on the sector, advising their clients to be careful & practice extreme caution when trading on rubber gloves shares. Sorry, but I think C..B & Citigroup bullish called on the sector is downright misleading at this particular time. Kudos to RHB, HDBS, OSK, AmResearch and you yourself ALEX for being fair and honest on your assessment and outlook on the industry.

Alex Lu said...

Hi tan,

Frankly, I don't know what's the target price. The company recorded 1Q2011 EPS of 0.39 sen and its NTA per share stood at RM0.37 as at 30/4/2010.

Property stocks valuation varies substantially. Price to book ('PB') can range from 1 to 2 times, while PE can range from 8 to above 25 times.

While TAGB's NTA per share should not vary too much, its earning could jump with the launch of Damansara Avenue. What would be the future earning? I don't know. Using PB method, TAGB's fair value could range from RM0.40 to RM0.80.

Alex Lu said...

Hi Takeiteasy, KC & David,

Thank you for sharing your thoughts & recent development on the glove sector.

Alex Lu said...

Hi Ai Ling

You asked a tough question. I will give you the stats and you decide.

1. Axiata made EPS of 18 sen for 1H2010. Based on a close of RM4.48 and annualized EPS of 36 sen, Axiata's PE is about 12.4 times.

Axiata has good growth prospect with its exposure in a few developing countries. For that reason, it is not paying any dividend as it needs to conserve its cash to finance its expansion.

2. Digi made EPS of 71.6 sen for 1H2010. Based on a close of RM24.98 and annualized EPS of 143.2 sen, Axiata's PE is about 17.4 times.

Digi can only grow by investing into 3G spectrum. The capex requirement is smaller and it can pay off most of its earning. For FY2009, it paid dividend totaling 178 sen. If it can maintain that level of payout, its dividend yield is about 7.1%. Everybody can do with a stock that pays such handsome dividend!

The choice is yours...

Alex Lu said...

Hi steve

MMHE's IPO is pricey. Its issued shares would be 1.6 billion. Its net profit attributable to shareholders would be about RM280 million (based on the numbers for FYMar2009 & FYMar2010 of RM279 million & RM278 million, respectively. As such, its EPS is about 17.4 sen. At the IPO price of RM3.61, its PE would be 20.7 times.

CI Holdings had a big move in September- jumping from RM2.80 to RM3.95. The weekly RSI shows bearish divergence. The stock needs to consolidate its recent gain. It may pullback to either the 20-day SMA line at RM3.50 or 50-day SMA line at RM3.20. Between these levels, you can consider nibbling some shares in CI Holdings.

Unknown said...

Hi Alex,

Do you know what had happened to IGB share price @ 9th January 2007?

Thanks in advance.

Unknown said...
This comment has been removed by the author.
PP KLSE said...

Hi Alex,
PBBank will announce Q3 result soon,what is your opinion about this quarter result.
Thanks for your sharing in advance.

Unknown said...

Hi Alex, Mudajaya got an announcement that quite negative. Will it impact the share price?

Nightwatchmen said...

Hi alex

Can u tell why tenaga is under pressure despite upgrade by analyst ? Thanks

Alex Lu said...

Hi Adrix

Nothing happened to IGB share price @ 9th January 2007. Please check your price data with Tradesignum.

Alex Lu said...

Hi gan

I expect a good set of results from PBBank for QE30/9/2010. However, I do not have any forecast of that result. I am running a one-man show which leaves very little room for anything other than actual results.

Alex Lu said...

Hi tat

Bursa seems to have ticked off Mudajaya regarding its practice of round tripping. Other than that, it seems to be a clean bill or at least a qualified clean bill.

As investors were expecting something really bad, this "non-news" should be viewed as good news.

Alex Lu said...

Hi nightradersdk

Tenaga is a stock that is hard to predict. On paper, it looks good, with good growth & a likely tariff hike. It even announced a bonus issue, which should get many retail investors jumping on their feet. Yet, it's a stock that has disappointed many, time & time again.

The only people holding a lot of Tenaga are the fund managers who cannot afford not to have it. For the rest of us, it is a stock that we tend to watch with disinterest. However, if you have the patience (which is a great virtue to have as an investor), you can get into Tenaga now for reasons noted above.