Stock Picks #5
Top Glove Corporation Berhad (TOPGLOV)
Week Low: RM 4.48 (Down 21 sen – 4.5%)
"To recap last week, Maybank Research in its analyst report on 24 April upgraded TopGlove Corp from "SELL" to "BUY"
raising its target price to RM 5.40 stating that TopGlove sales volume
picked up in its latest quarter to almost back to its H1N1 peak as well
as its key production cost (latex cost) has begun its seasonal
downtrend.
Market
took this news as positive as higher sales and lower production costs
are expected to be beneficial to TopGlove's net profits in the coming
months. TOPGLOV stock rose 5.6% since 24 April to week’s highest RM 4.72
on 25 April."
Subsequently (this week), on 1 May, the Malaysian Government announced minimum wage to set at RM 900 and to be effective 6 months from date the Minimum Wage Order is gazetted.
Hwang
DBS Vickers Research stated that Top Glove will be most affected by
minimum wage policy and its earnings and margins are expected to be
dampened in the immediate term.
HwangDBS said its sensitivity analysis showed earnings could fall by 5%-19%,
if minimum wage of RM900 per month is implemented assuming no change in
average selling prices. Nonetheless, HwangDBS expects additional staff
costs to be passed to customers over time.
Market
reacted negatively on potentially lower profit margins from the minimum
wage policy even though it will only be effective only 6 months from
the date the Minimum Wage Order is gazetted.
Take
note that the government has also provided some flexibility whereby
some allowances or fixed cash payments are allowed to be absorbed in the
calculation for minimum wage. Furthermore, if Top Glove is able to pass
through the staff costs increase by raising average selling prices,
then the impact may be reduced.
TOPGLOV stock dropped 4.5% (21 sen) since 2 May to week’s lowest RM 4.48 on 3 May and closed at RM 4.55 for the week.
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