Analysts unexcited by Top Glove’s condom venture

PETALING JAYA: Analysts did not jump for joy over Top Glove Corp Bhd’s venture into the condom business, citing challenges inherent to the industry and the less than 10% of group revenue contribution expected from the segment.

Hong Leong Investment Bank (HLIB) Research, while acknowledging the condom business would complement the group’s existing business, cited challenges such as a consolidation of the global industry and issues relating to demand.

Top Glove shares rose 9 sen or 1.6% to close at RM5.60 yesterday on some 5.04 million shares done.

Meanwhile, MIDF Research said even with the high margins coming from the condom business, it is expected the new business will only make up less than 10% of the group’s revenue going forward.

Top Glove targets to establish its factory within the Klang vicinity and reach markets within a year’s time. It will make an initial investment of RM20 million, which will allow it to have 20 condom production lines. The production is expected to commence within a year from now.

HLIB Research said while it likes Top Glove for its exposure in the resilient export market and it being a benefactor of the strong US dollar, is of view that the stock is fairly priced at current levels.

The research house is maintaining a “hold” call on Top Glove with an unchanged target price of RM5.20.

Kenanga Research is positive on Top Glove as its subsequent quarters’ earnings are set to gradually improve, driven by re-stocking activities following lower input latex cost underpinning lower average selling prices.

The research house foresees the sales volume to surge following the lower average input latex cost, which has fallen by an estimated 25% year to date. In tandem with falling raw material latex price, Top Glove is expected to lower its average selling prices in the range of US$2 (RM8.60) to US3.50 (RM14.99) per thousand pieces or an average of between 6% to 16%.

Kenanga Research has reiterated an “outperform” call on Top Glove, with a target price of RM6.10.

Top Glove also told an analyst briefing that it is targeting to achieve 30% of the global rubber gloves market share by 2020. MIDF Research noted that the increase in market share will be driven by both organic and inorganic growth via its capacity expansion as well as mergers and acquisitions to boost its gloves supply.

In addition, it will continue to expand its market outreach to countries that has low glove penetration rates such as the African countries. Top Glove expects to have 59.7 billion pieces of gloves production capacity by end-2018.