Top Glove is likely to report a 15-25% qoq decline in 2QFY8/11 net profit to RM25m-30m on 16 Mar, taking 1H net profit to RM61-66m or only 49-53% of our full-year forecast and 63-68% of consensus. We are likely to slash FY11-13 EPS by 16-36% as we overestimated the company’s ability to pass on costs and did not foresee rubber’s rapid price rise. Preliminarily, we are looking at a cut in target price from RM7.27 to RM5.73, still based on our target market P/E of 14.5x. Ahead of the results, we downgrade our recommendation from Outperform to NEUTRAL. Top Glove is trading at a 1-year forward P/E of 11.3x versus 8.5x for the sector, a premium which we believe is unjustified. But this offset by rubber price’s downtrend, which will enable Top Glove to claw back earnings in future quarters.
Source: CIMB Research Report
This blog is related to observations regarding stocks traded in Malaysia. Disclaimer: The company analysis that appear in this blog is merely facts gathered from different sources and the author's personal view. It is not a buy or sell recommendation. The author do not guarantee the accuracy of the facts being presented. Please consult your investment advisors before acting on any information provided by the analysis above.
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