Wednesday, 16 September 2020

Brief Notes on Top Glove

Top Glove is going to announce its highly-anticipated FY20Q4 tomorrow. Almost everyone expects at least triple jump in its net profit QoQ.

Its PATAMI in previous quarter was RM347.9mil. For the upcoming quarter, I read from various sources that it will be at least RM1.2 billion.

How will the market react to its result tomorrow?

Earlier this month Comfort released a marvelous result with 2.6x increase in net profit QoQ. However, its share price dropped 3.4% the next day from RM4.13 to RM3.99, before dropping further to RM3.23.

Supermax reported an even more spectacular result in early August with a 5.7x increase in net profit QoQ. At that time, the gloves sentiment was good.

While most people thought that its share price would surely skyrocket the next day, it rose only 2.2% and then unexpectedly fell from a high of RM24.40 to RM16.70 in just 5 days.

If Top Glove can achieve RM1.2 billion PATAMI in its quarterly result released tomorrow, base on current 8.17 billion shares, its EPS will be 14.7sen.

If its annual net profit in FY2021 can reach RM6 billion which I think is highly likely, its EPS might be RM0.73. Base on a modest PE ratio of 20x, it's worth RM14.60. 

With current share price of RM8.43, there is still a good 70% upside potential.

Share price movement of glove stocks is very volatile possibly due to high participation of retail investors.

Most investors are worried that vaccines news will dampen the sentiment in gloves stocks, and the high ASP and demand of gloves might not sustain beyond year 2021. 

Well, no one knows what will happen in 2 years time. By then, Covid-19 might still be rampant or it might be under control or eliminated. 

Personally I invest in a gloves stock, as readers should have known. It's my style of investing in any company with potential growth.

The growth in gloves stocks is almost certain and its current valuation is not too high in my opinion.

It's like when the crude oil price and crude palm oil price rise, investors buy oil & gas and plantation stocks knowing that the commodity price will eventually fall back.

When investors are aware that furniture demand in US increase as a result of Covid-19, they rush in to buy furniture-related stocks knowing that the rise in demand might not sustain for a few quarters. 

It's a common way investors make money in stock market, which is to ride the trend.

The only difference for gloves stocks is that their share prices have already gone up so much and there is worry that they might fall hard. This worry makes sense as well.

For me, gloves companies will have at least 1-2 years of superb results. However, I don't know how will the market value them.

In good case, market continues to give the big gloves companies PE of 20-30x. In bad case, the market gives them PE of only 5, just like Matrix even though it's a great company which continues to grow.

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