Topglov: Bottom-line plunged

Results Update

For QE31/5/2019, Topglov's net profit dropped 29.4% q-o-q or 36.5% y-o-y to RM74.7 million while revenue rose 2.6% q-o-q or 8.1% y-o-y to RM1.190 billion. Revenue increased due to 2%-increase in Sales Volume plus increase in ASPs.

Meanwhile, Profit Before Tax and Profit After Tax eased by 34.5% and 29.5% respectively. This was attributed to a 22% surge in the price of natural rubber latex compared with QE28/2/2019, coupled with strong competition as well as the time lag in passing on cost to customers, which affected the natural rubber glove profit contribution. However, the situation has improved from May 2019 onwards due to the effect of selling price revision. The nitrile latex price decreased slightly by 3.1% to USD1.05/kg, which mitigated the impact from competition in nitrile glove segment.

 
Table: Topglov's last 8 quarterly results


Graph: Topglov's last 50 quarterly results

Valuation

Topglov (closed at RM4.87 yesterday) is now trading at a trailing PE of 32 times (based on last 4 quarters' EPS of 15.35 sen). At this PER, Topglov is deemed overvalued.

Technical Outlook

Topglov dropped sharply yesterday after the release of its poor result during the mid-day break. The price tested the medium-term uptrend line, S1-S1 at RM4.65 before it recovered to close at RM4.87. It is possible that Topglov may re-test the medium-term uptrend line again given the sharp decline in earnings last quarter. If the medium-term uptrend line, S1-S1 cannot hold, the next support will be the horizontal line at RM4.20.


Chart 1: Topglov's daily chart as at June 18, 2019 (Source: Malaysiastock.biz)


Chart 2: Topglov's weekly chart as at June 18, 2019 (Source: Malaysiastock.biz)

Conclusion

Based on weaker financial performance and high valuation, I revise my rating for Topglov to a Trading Sell. A good sale would be closer to RM5.00 and a good re-entry price would be below RM4.50.

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.