Koon Yew Yin 10 Aug 2020
Malaysia Sin Chew reported Top Glove’s average selling price ASP was increased by 15% for June, July and 30% for Aug. Top Glove’s ASP will be increased more than 30% for September
In the 3rd quarter ending May, its revenue Rm 1,688 million – PBT 422 million = Rm 1,266 million production cost.
Monthly revenue = 563 million
Monthly PBT = 141 million
Monthly Production cost = 422 million
June 2020
Revenue = 563X1.15 = 647 million
June PBT = 647- 422 = 225 million
July 2020
Revenue = 647X1.15 = 744 million
July PBT = 744 – 422 = 322 million
August 2020
Revenue = 744X1.3 = 967 million
August PBT = 967-422 = 545 million
Total PBT for 3 months = 1.092 billion
Assume 25% tax
PAT for Q4 2020 = 1092X0.75 = 819 million
Total number of shares = 2.704 billion
EPS for Q4 2020 = 30.2 sen
EPS for Q3 2020 = 13.6 sen
Growth of EPS QoQ = 30.2/13.6 = 2.22 times.
That means its 4th quarter profit is 2.22 times its 3rd quarter profit.
What will be Top Glove’s PAT for financial year 2021?
If Top Glove has increased its ASP by 15% for June, 15% for July and 30% for Aug. it is very safe and conservative to assume that it will increase its ASP by 15% per month for 12 months of the next financial year. Top Glove also reported that its production will be increased by 25% to achieve 100 billion gloves for 2021.
September PBT will be Aug PBT 545 X 1.15 X 1.25 = 783 million.
October PBT 783X 1.15X = 900 million
November PBT 900X1.15 = 1035 million
December PBT 1035 X1.15 = 1190 million
January 2021 PBT 1190 X 1.15 = 1369 million
February PBT 1369 X 1.15 = 1574 million
March PBT 1574 X 1.15 = 1810 million
April PBT 1810 X 1.15 = 2082 million
May PBT 2082 X 1.15 = 2394 million
June PBT 2394 X 1.15 = 2753 million
July PBT 2753 X 1.15 = 3166 million
Aug PBT 3166 X 1.15 = 3641 million
Total PBT for 12 months Rm 22,700 million
PAT 22700 X 0.75 = Rm 1703 million
EPS 1703 divided 2.704 billion = Rm 6.30
Based on P/E 20 target price Rm 126
Now I can believe Affin Hwang Capital Research analyst Mr Ng Chi Hoong’s Rm 100 as Top Glove’s target price is achievable.
The Supermax price chart shows that it has shot up from Rm 2 to Rm 23, an increase of 11.5 times in the last few months.
While Top Glove has gone up from Rm 6 to Rm 28, an increase of 4.7 times in the last few months. Logically investors should sell Supermax to buy Top Glove.
Currently there are 19.981 million Covid19 cases and 732,782 deaths in the world. The number of cases and deaths are still spiking up. As a result, the demand for medical gloves will continue to exceed supply. Top Glove being the largest glove producer should be able to increase its selling price easily.
