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PP 7767/09/2010(025354



Corporate Highlights
New s Upda te
Share Price Fair Value Recom : : :

RHB 27 April 2010 Research Institute Sdn Bhd A member of the RHB Banking Group
Company No: 233327 -M


27 April 2010 RM12.98 RM15.50 Outperform (Maintained)

Top Glove Corporation
Proposes 1-For-1 Bonus Issue

Table 1 : Investment Statistics (TOPGLOV; Code: 7113) Net FYE Aug 2009 2010f 2011f Turnover (RMm) 1,529.1 2,062.3 2,342.1 profit (RMm) 169.1 262.7 283.8 EPS (sen) 57.3 89.0 96.2 Core EPS# (sen) 57.3 89.0 96.2 Growth# (%) 54.2 55.3 8.1 PER# (x) 22.6 14.6 13.5 12.7 C.EPS* (sen) 88.0 94.0 102.0 # Excludes EI

Bloomberg: TOPG MK

Net P/NTA (x)
4.9 4.0 3.4 2.9

Gearing (x)
net cash net cash net cash

ROE (%)
22.6 28.7 26.0

GDY (%)
2.3 3.5 3.6

2012f 2,648.1 300.6 101.9 101.9 5.9 Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC

net cash 23.6 3.9 * Consensus Based On IBES

Bonus issue of 1-for-1. Top Glove yesterday declared a 1-for-1 bonus issue. Assuming all existing 6.6m treasury shares are resold in the open market (maximum scenario), up to 348.0m bonus shares will be issued, bringing Top Glove’s total issued share capital to 696.0m upon completion. The entitlement date will only be announced later. Positive for sentiment. Although the proposed bonus issue would not have any impact on valuations, it may help to improve the stock’s liquidity and could help buoy retail sentiment towards the stock. Outlook. We reiterate our positive view on the glove industry as we believe demand for gloves would continue to be strong, supported by organic demand growth and rising healthcare awareness in developing countries such as China and India. The possibility of more H1N1-type flu outbreaks in the future could be another catalyst for demand. While concerns over escalating raw material prices and the weakening US$ are 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 appreciating RM against the US$; 3) execution risk from capacity expansion; and 4) weaker-than-expected results from overseas operations. Forecasts. We have left our FY10-12 earnings forecasts unchanged for now. 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 endNov ’09, and this would help support the company’s revised dividend payout ratio of 40% (30% previously). Our fair value of RM15.50 is unchanged and based on target CY10 PER of 17x. No change to our Outperform call on the stock.
Please read important disclosures at the end of this report.

Issued Capital (m shares) Market Cap(RMm) Daily Trading Vol (m shs) 52wk Price Range (RM) Major Shareholders: Tan Sri Dr Lim & family Overlook Partners Fund Matthews International FYE Aug EPS chg (%) Var to Cons (%) PE Band Chart
PER PER PER PER = = = = 25x 20x 15x 10x

307.8 3,995.7 0.7 5.52-14.00 (%) 38.6 5.0 4.8 FY11 2.4 FY12 (0.1)

♦ ♦

FY10 1.2

Relative Performance To FBM KLCI

♦ ♦

Top Glove Corporation


David Chong, CFA (603) 9280 2179

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27 April 2010

Table 3: Earnings Forecasts FYE Aug (RMm) FY09a Turnover Turnover growth (%) EBITDA EBITDA margin (%) Depreciation EBIT EBIT margin (%) Net Interest Associates Pretax Profit Tax Minorities Net Profit 1,529.1 54.0 288.5 18.9 (57.0) 231.5 15.1 (8.5) (1.0) 222.0 (53.9) 1.1

FY10F 2,062.3 34.9 410.8 19.9 (61.1) 349.7 17.0 (1.6) 0.0 348.1 (80.1) (5.4)

FY11F 2,342.1 13.6 443.2 18.9 (66.3) 376.9 16.1 (1.8) 1.0 376.1 (86.5) (5.8) 283.8

FY12F 2,648.1 13.1 470.9 17.8 (72.8) 398.1 15.0 (1.8) 2.0 398.4 (91.6) (6.1) 300.6

Table 4: Forecast Assumptions FYE Aug FY10F Capacity (bn pcs p.a.) Capacity utilisation (%) Change in ASP (%) 34.4 85.0 0.1

FY11F 39.9 85.0 1.0

FY12F 41.8 90.0 1.0

262.7 169.1 Source: Company data, RHBRI estimates

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This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel. The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues. 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. 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