Top Glove: 3 things investors should know

Top Glove posted record earnings in the last quarter of 2020. Here are three key things investors should know about the stock.

Top Glove stock is down 9% despite strong Q4

Despite posting record high sales revenue and net profit for its final quarter of fiscal 2020 last week, Top Glove Corporation’s share price has been facing downside pressure.

Since the dual-listed Malaysian glove manufacturer revealed on Thursday 17 September 2020 that sales revenue soared 162% year-on-year, shares have declined by nearly 9%.

As at 13:30 SGT on Tuesday 22 September 2020, Top Glove’s Bursa Malaysia (KLSE: TOPGLOV) stock - tracked by IG's Malaysia 30 index - is trading at 8.03 ringgit (S$2.65) per share.

Meanwhile, the company’s Singapore Exchange shares (SGX: BVA) are trading at S$2.65 on the IG platform – down nearly 10% from last week’s high point of S$3 a share.

Top Glove raises 2020 dividends by 373%

Top Glove saw sales revenue hit 3.11 billion Malaysian ringgit (S$1.02 billion) for the quarter ended 31 August 2020, as global demand for gloves amid the Covid-19 pandemic continued to remain lifted this year.

Profit After Tax came in at 1.33 billion ringgit (S$439 million), 18 times higher than that registered in the corresponding period a year ago.

For the full 2020 financial year, sales revenue amounted to a new record of 7.24 billion ringgit (S$2.39 billion), up 51% from that of FY2019, while Profit After Tax also soared to 1.9 billion ringgit (S$626 million), a spike of 417% from the previous financial year.

In light of the strong performance, the company’s board recommended a final dividend of 0.085 ringgit (S$0.28) per share, amounting to a payout of approximately 691.8 million ringgit (S$228 million).

This brings the total FY2020 dividend payout to S$0.118 per share (S$0.039), amounting to a total payout of approximately 961.2 million ringgit (S$317 million).

The FY2020 dividend amount represents a 373% increase over FY2019’s sum, also amounting to a net profit payout ratio of 51%.

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Top Glove stock prediction: The bull and bear case

Following the results, UBS analyst Nicole Goh gave the stock a 12-month target price of 5 ringgit a share and a ‘neutral’ rating.

Her price target represents a downside of 37% from the last traded price.

Goh noted that while upward momentum of nitrile glove’s average selling price (ASP) remains strong – with ASP expected to grow another 25% in September 2020 and 30% in October 2020, raw material prices are also rising.

On the other hand, UOB analyst Philip Wong had a much more bullish target price of 8.43 ringgit per share, alongside a ‘buy’ rating.

Wong stated that Q4 earnings ‘soundly beat expectations amid higher ASPs and spot sales kicking in’, adding that the US Customs and Border Protection’s (CBP) detention order on Top Glove’s imports was ‘well navigated with little impact’.

‘Robust nitrile ASPs, expected narrowing price gap between latex ASPs and nitrile ASPs, and resolving of the CBP withhold order would well justify the surge in valuations’, he wrote.

The Top Glove Bursa Malaysia stock received a majority rating of ‘buy’ from 16 out of 22 analysts polled by Bloomberg, as of 15 September 2020.

The analysts also gave the stock an average 12-month target price of 9.14 ringgit (S$3), which represents a stock return potential of 13.8% from the last traded price.

How to trade Malaysia stocks with IG

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