Top Glove Corp (BUY, Unchanged)- Topping FY09 with special dividend
Fair value: RM8.45 (Under Review)
Share price: RM8.15
* Top Glove Corp (Top Glove) reported a net profit of RM169mil for its 12-months ended August FY09, exceeding street estimates of RM155mil by 9%. This is however, within our recently revised estimate of RM163mil.
* Top Glove recorded a robust 15% QoQ increase in turnover to RM427mil, buoyed mainly by strong sales growth of basic powdered latex examination gloves. Compared to its preceding quarter, net profit surged 35% to RM57mil. This was largely attributed to higher EBITDA margin which had expanded to 22%, or +2.8ppts from the previous quarter.
* Compared to last year, Top Glove's full year net profit of RM169mil was up 54% on the back of stronger demand from A(H1N1) buying, overall lower cost structures from price of latex, a stronger US dollar to Ringgit exchange rate as well as better margins. This was despite a higher effective tax rate of 24% versus 19.7% in FY08.
* Its management has proposed total dividends of 15sen/share, single tier tax-exempt, bringing total dividends to 22 sen/share for Top Glove's financial year. The group declared and paid an interim dividend of 7 sen/share in Q3FY09. Besides a final dividend of 9sen/share, investors can look forward to a special dividend of 6 sen/share.
* Going forward, Top Glove's earnings growth would be underpinned by additional production capacity from its new production lines - from Factory 19, 20 and 21. While Factory 19 has been fully operational since June 2009, Factory 20 and 21 are scheduled to start operations in February and July 2010, respectively.
* Given its bright prospects ahead and net cash of RM177mil, there is a possibility of the group increasing its dividend payout for the coming years as well. As it is, Top Glove's total dividend payout of 40% for FY09 is currently higher than its historical 30%.
* The group's share price had appreciated circa 15% in the past two weeks, prior to release of the group's last quarter performance. This could thus see some retracement in the coming weeks. But Top Glove's valuation is still undemanding as it is trading way below its historical mean of 15x.
* We maintain our BUY recommendation on Top Glove. Our fair value of RM8.45/share - based on 14x CY10F earnings - is Under Review with an upward bias, pending Top Glove's briefing for analysts on 14 October 2009.
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