KUALA LUMPUR (Oct 10): Top Glove Corporation Bhd (KL:TOPGLOV) extended its gain in active trade on Friday as investors cheered a set of better-than-expected results.
While there is some optimism with the recently-ended fiscal year performing above consensus estimates, analysts noted that the earnings were largely driven by better margins from lower raw material costs while the outlook remains clouded by a persistent supply glut.
“We expect competition to intensify” with new capacity from China glove makers’ overseas expansion in Southeast Asia coming online from November onwards, Maybank Investment Bank cautioned and kept its "sell" call on the stock.
Top Glove rose as much as three sen or 4.5% to 70 sen, adding to the 16% gain a day earlier. The stock was trading at 68 sen at 9.30am after nearly 37 million shares changed hands. At the last price, the world’s largest glove manufacturer by capacity has a market capitalisation of RM5.6 billion.
At least four analysts upgraded their recommendations for the stock following the results though "hold" and "sell" calls together still outnumbered "buy" ratings by 15 to six. The 12-month target price is 76 sen, according to the average of 21 analysts tracked by Bloomberg.
Rivals from China have been setting up shop and ramping up their productions in Vietnam, Indonesia, and Cambodia to dodge US tariffs while providing steep discounts to compete in non-American markets.
“... Chinese players’ move to expand capacity in Southeast Asia appears to be a response to the higher US tariffs on China, rather than a reflection of overall recovery in supply-demand dynamics in the global glove industry,” CIMB Securities noted and kept the stock on "hold" call.
Despite the rebound since Thursday, Top Glove’s share price is still down by nearly 50% so far this year.
For Hong Leong Investment Bank, the stock is no longer a "sell" given its “more balanced risk-reward profile” following the share price correction and encouraging guidance from the Top Glove’s management.