KUALA LUMPUR (June 19): Top Glove Corp Bhd (KL:TOPGLOV) slipped on Friday, set for its fifth straight day of decline, while analysts see little upside ahead, even as the latest results beat market estimates.
At least four research houses downgraded the stock, noting that earnings at the world’s largest natural rubber glove maker by capacity have likely peaked as sales volume and product prices are moderating amid easing geopolitical conflict in the Middle East.
“We believe the recent strong earnings are unsustainable,” CIMB Securities said and downgraded its recommendation to 'reduce' from 'hold'.
Top Glove dipped half a sen or 0.7% to 71.5 sen on Friday. The stock, however, is still up more than 20% from the end of February when the Iran war broke out, as investors bet on an earnings boost from higher average selling prices in line with the surge in input costs.
The consensus, meanwhile, is now cautious as 'sell' and 'hold' outnumber 'buy' calls, according to research firms tracked by Bloomberg. The average target price is 70 sen post-results.
“We believe the current valuation implies peak earnings rather than normalised profitability, with limited rerating catalysts from here,” Public Investment Bank said in a separate note and lowered the stock’s rating to 'underperform'.
Revenue and earnings are expected to moderate as average selling prices of gloves have begun falling this month after peaking in May, the house said, adding that the market will also continue to be oversupplied.
The industry is still grappling with a massive supply glut as rivals from China ramp up productions in other Southeast Asian countries to dodge US tariffs. A deluge of Chinese-made gloves in non-American markets have also added to the pressure faced by Malaysian manufacturers.