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Results Note – Top Glove (ADD, maintain) - Momentum to pick up in 2H




Affin Hwang Investment Bank Bhd


14 Mar 2013





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2QFY08/13 earnings fell -12.5% qoq; -5.9% yoy due to higher labor cost Top Glove’s (TOPG) 2QFY08/13 revenue and core net profit fell by -1.4% and -12.5% qoq to RM576m and RM50.3m respectively. We attribute this to: 1) the tepid volume sales growth (+3% qoq); 2) lower ASP (-4% qoq) in tandem with the lower raw material cost, and importantly; 3) a higher labour cost due to the minimum wage policy, effective in Jan 2013. (We note that TOPG had incurred an additional RM4m/month in labour cost.) Although TOPG had raised its ASP by 5-6% in Feb 2013, the resulting positive impact will only be felt in 3QFY08/13, when gloves are delivered to customers, which usually takes c.4-6 weeks. Hence, we believe TOPG’s EBITDA margin will scale back to the range of 13%-14% in 3Q (2QFY08/13’s EBITDA margin slipped by -1.42%-points qoq to 10.6%), when the impact from the cost-pass through exercise kicks-in.

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