KUALA LUMPUR (Dec 8): Top Glove Corp Bhd's quarterly profit for the first quarter ended Nov 30, 2021 (1QFY22) is expected to come in the range between RM220 million and RM300 million, or 50.7% to 63.8% quarter-on-quarter (q-o-q) lower than the net profit of RM607.9 million for 4QFY21, said an analyst.

The lower 1QFY22 profit estimation is due to lower glove average selling price (ASP) of circa -33% and windfall tax, TA Securities analyst Tan Kong Jin said in a note Wednesday.

“Moreover, we expect sales volumes to be flattish as customers would wait longer now before replenishing their stocks in view of the declining ASP,” he said.

Top Glove is scheduled to release its 1QFY22 results this Friday (Dec 10).

On a year-on-year basis, Tan also projected Top Glove's net profit to plunge by 87.4% to 90.7% from RM2.4 billion in 1QFY20.

The plunge in profit is expected to come from lower ASP of 52% and lower sales volumes of 10%, he said.

“All in all, we expect Top Glove’s 1QFY22 results to come in below consensus estimates at about 14.7% of the RM1.8 billion profit forecast for FY22 (financial year ending Aug 31, 2022),” he said.

Meanwhile, based on his channel checks, Tan said glove players have not seen an increase in demand for gloves despite the emergence of the Omicron Covid-19 variant.

According to Tan, this could be attributed to customers’ wait-and-see approach to evaluate the severity of the Omicron variant amid declining glove ASP.

“As such, we believe that the current average plant utilisation rate would hover at 60-65% levels, similar to the utilisation rate in October,” he said.

As for ASP, he said nitrile gloves are selling at US$26 to US$30 per 1,000 gloves (versus pre-pandemic US$22.50 to US$24.50) while latex gloves price ranges from US$21 to US$25 per gloves (versus pre-pandemic US$19) currently.

“In view of the declining ASP trend, we expect ASP normalisation to happen in 1QCY22. Thereafter, the industry is expected to undergo consolidation in the second quarter of 2022 (2QCY22) and 3QCY22 as ASP revert to normalcy,” he said.

In terms of capital expenditure, Tan said Top Glove has budgeted RM1 billion for FY22 to expand its capacity, upgrade plants, build hostels, construct a nitrile rubber latex processing plant and gamma sterilisation plant.

According to him, Top Glove’s current capacity stood at 100 billion gloves and management plans to increase it to 111 billion/137 billion/162 billion by end of 2022/2023/2024.

“The expansion would represent a capacity growth of 11%/23%/18% over the next three years. However, given that current utilisation rate remains below pre-pandemic levels, we believe the group will slow down further its expansion plans,” he said.

He lowered Top Glove's earnings estimates for FY22/FY23/FY24 by 44.8%/33.1%/29.6% after cutting his ASP assumptions and sales volumes by 8.1% and 10.3%.

“Overall, our FY21/FY22/FY23 net profit margin is reduced to 11.7%/8.5%/8.2% from 15.9%/10.8%/10.4% previously,” he said.

Following the earnings revision, he lowered Top Glove’s target price to RM1.80 per share from RM2.60 previously based on a price earnings multiple of 22 times for 2023 earnings per share. He also maintained a "sell" call on the stock.

At 9.59am, Top Glove fell seven sen or 2.8% to RM2.43. It earlier slipped to an intra-day low of RM2.41.

At RM2.43, the counter was valued at RM21.09 billion.

Year to date, the counter has dropped 55.82%.