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Top Glove’s shares fall after posting weaker performance
Top Glove Corporation Bhd’s share fell after posting a weaker-than-expected performance in the first half financial year 2014.
At 10.43am, the company’s share price dwindled 27 sen or 5.1%, to RM5.01, with 6.29 million shares transacted.
Kenanga Research said Top Glove’s first-half profit after tax and minority interest of RM91.8 million were below its expectation and accounted for only 40-41% of full-year forecast.
The research house said the rubber glove manufacturer’s after tax and minority interest shed 15% as compared to the same period last year due largely to losses from its China operations amounting to RM10.6 million.
The weaker performance was also attributed by margin pressure from intensifying competition and inability to implement full cost pass through and forex losses, the research firm said in a note.
Kenanga Research said Top Glove had shut down its plant in ZhangJiaGang City since January this year and is consolidating its Chinese operations into the factory in Xinghua City after new regulations prohibited the usage of coal as an energy source in the former.
As such, the company started scaling down production volume in ZhangJiaGang City in anticipation of the closure and plans to sell the plant.
“Since this piece of land was acquired in 2005, the current market price may be more than double its net book value. Hence, the closure costs are expected to be offsetted by gains from the disposal of ZhangJiaGang plant,” it said.
Looking ahead, the research house said Top Glove is expected to face difficulty maintaining decent average selling price to defend its market share due to its product mix, which is skewed towards the challenging latex-based gloves market.
However, it said the company growth prospects going forward is expected to come from its capacity expansion by additional 2.2 billion pieces of gloves or 5% growth to a total of 43.5 billion by end of this year, largely for nitrile gloves.
Nevertheless, Kenanga Research has downgraded Top Glove’s financial year 2014 and 2015 net profit forecasts by 12-15%, taking into account lower margins in the latex segment which accounts for 70% of the product mix.
The research house, however, maintained “market perform” call but revised downwards its target price by 9.3% to RM5.58 from RM6.10 previously.
