KUALA LUMPUR: Top Glove Corp Bhd's first half of financial year 2022 (1HFY22) core earnings of RM273 million comes in below expectations, Kenanga Research said.
This was due to lower-than-expected margins as input raw material cost fell slower than the sharper fall in average selling price (ASP), the firm said.
"Top Glove's 1HFY22 net profit came in at RM273 million which is below expectations at 30 per cent each of our and consensus full-year forecasts," it said.
Kenanga Research expects Top Glove's margins in subsequent quarters to be impacted as raw material cost is not adjusting as fast as falling average selling price (ASP).
The firm noted that the company's earnings could be lower sequentially which depends on the cost-pass through mechanism.
"Post Covid-19, inventory restocking cycle is expected to spur demand coupled with increased usage arising from new users and increased hygiene awareness," it said.
Kenanga Research said the lower net profit in 1HFY21 prompted it to cut Top Glove's FY22/FY23 earnings forecasts net profit by 44 per cent/39 per cent.
It also cut Top Glove's FY22 gross margin to 15 per cent from 19 per cent and ASP to US$25 from US$30 per 1,000 pieces.
FY23, Top Glove's gross margin assumption is reduced to 15 per cent from 18 per cent and ASP to US$24 from US$28 per 1,000 pieces.
Correspondingly, Kenanga Research has downgraded Top Glove's target price from RM2.05 to RM1.30.
"Overall we downgrade the stock from Market Perform to Underperform," it said.