Topglov: Attractive Enough?

Results Update

Topglov released its result for QE28/2/2019 on March 22. Its net profit dropped 4% q-o-q or 3.0% y-o-y to RM106 million while revenue was mix - down 8% q-o-q but up 21% y-o-y to RM1,16 billion. Revenue dropped q-o-q largely owing to lower average selling price arising from downtrend in raw material costs and some pricing pressure. Revenue dropped despite sale volume increased by 1% compared with 1QFY19.

Meanwhile, Profit Before Tax dropped 11.6% q-o-q mainly due to more competitive environment and weakening of USD. Raw material prices were lower compared with 1QFY19, with average natural rubber latex and nitrile latex prices easing by 4.2% to RM3.62/kg, and 14.3% to USD1.08/kg respectively.

 
Table 1: Topglov's last 8 quarterly results


Graph: Topglov's last 50 quarterly results

Financial Position

Topglov's financial position is deemed satisfactory with adequate current ratio at 1.04 times while gearing ratio is elevated at 1.12 times.

Rapid Expansion Ahead

Like other glove manufacturers, Topglov will increase its production capacity aggressively over the few years. It has outlined its planned expansion in the notes to the financial statement. I have appended the table below, which shows clearly Topglov will increase capacity by 33.7% to 80.9 billion gloves by end 2020. Can the market absorb the increased output? We will have to wait and see.

Table 2: Topglov's Planned Expansion for 2019 & 2020

Valuation

Topglov (closed at RM4.50 yesterday) is now trading at a trailing PE of 26 times (based on last 4 quarters' EPS of 17.11 sen). At this PER, Topglov is deemed fairly valued.

Technical Outlook

Topglov has declined from its recent high of RM6.31 recorded on November 29 last year to a low of RM4.30 recorded on March 13. The share price seems to have found support at the "horizontal line" AB at RM4.30. The developing recovering may set up an uptrend line for the stock going forward.


Chart: Topglov's daily chart as at Mar 26, 2019_10.00am (Source: Malaysiastock.biz)

Conclusion

Based on good financial performance and financial position and mildly positive technical outlook, Topglov is a good stock for long-term investment. The drop of RM2.00 from the recent high could well have fully-factored in the market's concern about over-capacity in this sector.

Note:

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.