KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) views Top Glove Corp Bhd's share price decline as an opportunity for investors to accumulate on weakness, in anticipation of a turnaround expected in financial year 2025 forecast.
HLIB said Top Glove's share price had retracted more than 10 per cent over the past two months.
Meanwhile, it noted that Top Glove's sales volume has continued to show encouraging growth in the second quarter ended Feb 29, 2024 (2Q24).
The group, HLIB said, has benefitted from customers' inventory replenishment and trade diversion arising from Chinese players being placed on import alert by the US Food and Drug Administration (FDA).
"Management guided that sales volume will remain robust in March and April 2024 supported by the aforementioned reasons, which would help lift utilisation rate and translate to better operating efficiency.
"Average selling price (ASP) is also expected to increase from April onwards, as Top Glove passes on the higher costs to buyers.
"As for raw material prices, natural rubber (NR) price is expected to ease in May while nitrile butadiene rubber (NBR) prices should soften in June," it said in a note.
HLIB said with demand on the rise, Top Glove had in recent months reopened one of its previously closed plants to meet demand.
It also noted that Top Glove plans to reactivate two more plants in April and May.
HLIB has upgraded Top Glove's rating to "Buy" from "Hold" previously, with a lower target price of 97 sen from RM1 previously.
Top Glove's 2QFY24 core loss after taxation and minority interests (Latami) came in at RM62 million versus RM59.7 million in 1QFY24, bringing 1HFY24 core Latami to RM121.6 million versus RM304.5 million in 1HFY23.
HLIB said the performance came in below both its (-RM101.5 million) and street estimates (-RM69 million).
"Key deviation to our forecast was due to lower-than-expected revenue," it noted.
As such, HLIB has lowered its forecasts for FY24, FY25 and FY26 to RM156.9 million, RM156.6 million and RM282.1 million respectively, mainly due to the lower revenue assumption.