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
Grumpy Old Man Syndrome
2 years ago
