$Top Glove (BVA.SG)$ After missing expectations for its full...
After missing expectations for its full-year results, Top Glove is expected to continue facing challenges amid escalating costs and unfavourable currency movements, prompting downward revision on earnings forecasts by analysts.
PublicInvest Research, in a note, said the glovemaker's full-year FY2024 core net loss of RM232.1 million was wider-than-expected, due to lower ringgit-denominated revenue, given a weaker US dollar.
As such, it has cut its FY2025-FY2026 forecasts by 6%-24%, taking into account a weaker US dollar, though this would also be partly mitigated by lower raw material costs and higher sales volume.
"We recognise that the recent depreciation of the US dollar against the ringgit continues to pose challenges, despite Top Glove's upward adjustment of prices by US$1 to US$2 per 1,000 pieces for orders beginning in Nov 2024. The impact of the weaker USD is expected to be more pronounced in 1QFY2025,” said the research firm, which reiterated a "neutral" call on the stock, with a revised target price (TP) of RM1.12 (from RM1.15).
Similarly, MIDF noted that high production costs, driven by rising natural rubber (NR) latex prices, and refurbishment expenses for production capacity expansion, also weighed on Top Glove's bottomline.
MIDF said that the imposition of a 50% tariff on Chinese glove imports by the US may offer some relief to Malaysian manufacturers, but global competition remains intense.
The house maintained its “sell” call on the group, with a TP of 82 sen, adding that the strengthening of the ringgit could continue to exert pressure on profitability, moving forward.
MIDF also noted that while the group has not declared any dividend for FY2024, it has proposed a bonus issue of up to 406 million warrants, based on one warrant for every 20 existing Top Glove shares, to reward shareholders.
Meanwhile, TA Securities noted that the world's largest glovemaker's plant utilisation remained low, hovering around 60%, planning to increase running capacity from 60 billion to 64 billion pieces by Dec 2024.
However, the house warned that the group's road to recovery may be hampered by the strengthening of the ringgit, and elevated costs could continue to hurt margins despite higher sales volumes.
TA Securities reiterated a "sell" call on the group, with a slightly higher TP of RM1.06, noting that its earnings estimates for FY2025-FY2026 remain unchanged.
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