Thursday, June 16, 2016

Topglov: Earnings Normalized

Results Update

For QE31/5/2016, Topglov's net profit dropped 40% q-o-q or 14% y-o-y to RM62 million while revenue was mixed- dropped 3% q-o-q but rose 2% y-o-y to RM672 million. Revenue declined 3% q-o-q  even though the sales volume growth was 5% due to lower average selling price and weaker USD. Profit before tax declined by 44% due to the weakening of USD, intense competition in nitrile glove segment as well as the increased raw material price.

Table: Topglov's last 8 quarterly results

Chart 1: Topglov's last 40 quarterly results


Topglov (traded at RM4.91 yesterday) is now trading at a trailing PE of 15.3 times (based on last 4 quarters' EPS of 32.01 sen). However, since earnings has begun to normalize, the more meaningful PER would be a forward PER. Assuming the next 3 quarters' earning will be similar to last quarter's earning, then forward EPS would be 20 sen. This will give you a forward PER of 24.5 times. This nearly matches Harta's forward PER of 25.6 times (based on its close of RM4.10 & forward EPS of 16 sen) but compares unfavorably to Kossan's forward PER of 20.3 times (based on its close of RM6.49 & forward EPS of 32 sen).

Technical Outlook

Topglov is likely to move within an upward channel, with support at RM2.50 & resistance at RM7.00. We may see a sideways movement with a downward bias for the next 3-4 years - similar to what we saw from 2010 to 2015.

Chart 2: Topglov's monthly chart as at as at Jun 15, 2016 (Source:


Based on weaker earning ahead and demanding valuation, I would revise Topglov from a HOLD to a SELL ON STRENGTH (at or above RM5.00). If you wish to stay invested in rubber glove stocks, my preference is KOSSAN.

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Topglov.

1 comment:

CK said...

Hi Alex, for Kossan fwd PE of 20 times, isn't it quite pricey given the competitive environment in the glove industry currently .