PP 7767/09/2010(025354)

RHB 27 April 2010

Research
Institute Sdn Bhd
Malaysia Corporate Highlights
A member of the
RHB Banking Group
Company No: 233327 -M

27 April 2010
MARKET DATELINE

New s Upda te
Share Price : RM12.98
Fair Value : RM15.50
Top Glove Corporation Recom : Outperform
(Maintained)
Proposes 1-For-1 Bonus Issue

Table 1 : Investment Statistics (TOPGLOV; Code: 7113) Bloomberg: TOPG MK

Net Core Net
FYE Turnover profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE GDY
Aug (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009 1,529.1 169.1 57.3 57.3 54.2 22.6 - 4.9 net cash 22.6 2.3
2010f 2,062.3 262.7 89.0 89.0 55.3 14.6 88.0 4.0 net cash 28.7 3.5
2011f 2,342.1 283.8 96.2 96.2 8.1 13.5 94.0 3.4 net cash 26.0 3.6
2012f 2,648.1 300.6 101.9 101.9 5.9 12.7 102.0 2.9 net cash 23.6 3.9
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC # Excludes EI * Consensus Based On IBES

♦ Bonus issue of 1-for-1. Top Glove yesterday declared a 1-for-1 bonus Issued Capital (m shares) 307.8
issue. Assuming all existing 6.6m treasury shares are resold in the open Market Cap(RMm) 3,995.7
market (maximum scenario), up to 348.0m bonus shares will be issued, Daily Trading Vol (m shs) 0.7
52wk Price Range (RM) 5.52-14.00
bringing Top Glove’s total issued share capital to 696.0m upon completion.
Major Shareholders: (%)
The entitlement date will only be announced later.
Tan Sri Dr Lim & family 38.6
♦ Positive for sentiment. Although the proposed bonus issue would not Overlook Partners Fund 5.0
Matthews International 4.8
have any impact on valuations, it may help to improve the stock’s liquidity
and could help buoy retail sentiment towards the stock. FYE Aug FY10 FY11 FY12
EPS chg (%) - - -
♦ Outlook. We reiterate our positive view on the glove industry as we Var to Cons (%) 1.2 2.4 (0.1)
believe demand for gloves would continue to be strong, supported by
organic demand growth and rising healthcare awareness in developing PE Band Chart
countries such as China and India. The possibility of more H1N1-type flu
outbreaks in the future could be another catalyst for demand. While PER = 25x
PER = 20x
concerns over escalating raw material prices and the weakening US$ are PER = 15x
PER = 10x
valid, we believe the glove manufacturers would be able to pass on the
higher raw material prices and weaker US$ (against RM) to their
customers, leaving growth prospects relatively intact.

♦ Risks. The risks include: 1) sharp surge in raw material (latex) and/or
energy (natural gas) prices, which may result in margin squeeze; 2) an Relative Performance To FBM KLCI
appreciating RM against the US$; 3) execution risk from capacity
expansion; and 4) weaker-than-expected results from overseas operations.
Top Glove Corporation
♦ Forecasts. We have left our FY10-12 earnings forecasts unchanged for
now.
FBM KLCI
♦ Investment case. We continue to like Top Glove for its position as the
world’s largest glove producer. Its annual production capacity is expected
to reach 35.3bn pieces by end-FY10, up from 33bn pieces currently, and
this would be supported by strong orders from Latin America and Europe in
preparation for the possibility of more H1N1-type flu outbreaks in the
future. Top Glove’s net cash position grew further to RM269.8m (17.6
sen/share) as at end-Feb ‘10 from RM222.0m (14.5 sen/share) as at end-
Nov ’09, and this would help support the company’s revised dividend David Chong, CFA
payout ratio of 40% (30% previously). Our fair value of RM15.50 is (603) 9280 2179
unchanged and based on target CY10 PER of 17x. No change to our david.chong@rhb.com.my
Outperform call on the stock.

Please read important disclosures at the end of this report.

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 27 April 2010

Table 3: Earnings Forecasts Table 4: Forecast Assumptions

FYE Aug (RMm) FY09a FY10F FY11F FY12F FYE Aug FY10F FY11F FY12F

Turnover 1,529.1 2,062.3 2,342.1 2,648.1 Capacity (bn pcs p.a.) 34.4 39.9 41.8
Turnover growth (%) 54.0 34.9 13.6 13.1 Capacity utilisation (%) 85.0 85.0 90.0
Change in ASP (%) 0.1 1.0 1.0
EBITDA 288.5 410.8 443.2 470.9
EBITDA margin (%) 18.9 19.9 18.9 17.8

Depreciation (57.0) (61.1) (66.3) (72.8)

EBIT 231.5 349.7 376.9 398.1

EBIT margin (%) 15.1 17.0 16.1 15.0
Net Interest (8.5) (1.6) (1.8) (1.8)
Associates (1.0) 0.0 1.0 2.0

Pretax Profit 222.0 348.1 376.1 398.4

Tax (53.9) (80.1) (86.5) (91.6)
Minorities 1.1 (5.4) (5.8) (6.1)
Net Profit 169.1 262.7 283.8 300.6
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to
opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer,
invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no
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interest in the securities mentioned by this report.

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over
a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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