KUALA LUMPUR (Dec 10): Some analysts that cover Top Glove Corp Bhd have raised their earnings forecasts for the glove making giant, but kept their target prices (TPs) for the counter.

The move is considered unusual, since an increase in earnings forecasts typically leads to an upward revision of TPs, or for stocks that do not have "buy" calls, an upgrade in recommendations.

Kenanga Research's Raymond Choo pointed out that Top Glove's first quarter ended Nov 30, 2020 (1QFY21) profit after tax and minority interests of RM2.38 billion came in at 36% of Kenanga's full-year forecasts and 26% of the consensus estimates.

He has raised his FY21 net profit forecasts by 40% after raising its average selling price (ASP) assumption to US$70 per 1,000 pieces, from US$55 per 1,000 pieces previously, and assuming 80% utilisation of 75 billion pieces worth of sales volume, taking into account the temporary production loss at Top Glove's Klang factories. Its FY22 ASP assumption remains conservatively pegged at US$40 per 1,000 pieces.

For the financial year ending Aug 31, 2021 (FY21), Choo is forecasting Top Glove to post a net profit of RM9.34 billion and a net profit of RM4.1 billion in FY22.

Still, Choo has maintained his "outperform" call on Top Glove with an unchanged TP of RM10.68 apiece.

"We lowered our PER (price-earnings ratio) rating as we believe valuations are already pegged to supernormal earnings; hence, moderation in earnings momentum beyond this phase should be factored in. Its merits are: (i) resilient earnings base due to its pricing power and sheer capacity size in the industry, and (ii) solid earnings growth averaging over 100% in FY21 compared to PER of six times," he explained.

Meanwhile, in a note to clients, JF Apex Research's Nursuhaiza Hashim opined that the RM2.38 billion quarterly profit was substantially above the research house's expectations at 50%, but in line with street estimates at 27.9%.

She revised her forecasts for Top Glove's FY21 and FY22 net earnings by 70.2% and 138.5% respectively to RM8 billion and RM3.1 billion.

"This is based on expectations of better profit margin and higher ASP (+30%) assumption for FY21F and FY22F. Overall, we envisage Top Glove's net earnings to grow strongly, up 357% year-on-year (y-o-y) for FY21F before normalising in FY22F, up 62% y-o-y," she said.

Nursuhaiza has maintained her "hold" call plus an unchanged TP of RM6.83 for Top Glove.

AmInvestment Bank Research's Thong Pak Leng raised FY21 earnings forecasts by 21% to RM7.9 billion after increasing its ASP assumption to US$80 per 1,000 pieces while reducing the average utilisation rate to 70% from 80%.

"We increase our FY21 ASP assumption following management's guidance and also the fact that spot price has reached as high as US$150-US$180/1,000 pieces in recent months while the reduction in utilisation rate is to reflect the temporary closure of some factories due to Covid-19 screening and quarantine for its workers," Thong noted.

Thong has made no changes to the research house's FY22 to FY23 numbers. Following its FY21 earnings revision, he expects Top Glove to pay a total dividend of 48 sen, translating into a yield of 6.9%.

Thong has maintained his "hold" call and RM7.07 TP.

Meanwhile, RHB Research's Alan Lim increased his FY21 forecasts by 13% to RM10.7 billion, with dividend per share being raised to 72 sen from 58 sen after assuming a higher payout rate of 55%. His forecasts for FY22 to FY23 remain unchanged at RM7.25 billion and RM4.48 billion respectively.

Lim has maintained his "buy" call and RM9.50 TP for Top Glove.

Top Glove achieved its highest quarterly net profit of RM2.38 billion in 1QFY21, on the back of record-high revenue of RM4.76 billion. Its earnings per share swelled to 29.64 sen from 1.5 sen a year ago.

It declared a 16.5 sen dividend per share — the highest interim dividend in the group's history. This translates into a payout ratio of 56%.

Shares in Top Glove were trading 2.49% or 17 sen higher at RM7.01 per share, valuing it at RM57.46 billion. It saw 17.45 million shares traded.

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Top Glove 1Q net profit surges to RM2.38b, declares 16.5 sen dividend