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Top Glove: my target price


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  

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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

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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.     

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