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Top Glove’s Latest Earnings: Revenue Grows, But Profit Is Held Back

Earlier today, Top Glove (SGX: BVA) reported its second quarter earnings for its financial year ending 31 August 2017 (FY17). The reporting period was for 1 December 2016 to 28 February 2017.

As a quick background, Top Glove is the world’s largest rubber gloves manufacturer with 2,000 customers worldwide. The glove maker has 28 factories and exports to over 195 countries. You can read more about Top Glove’s June 2016 listing in Singapore here.

Financial highlights

The following’s a rundown on some of Top Glove’s latest financial figures:

1. Revenue for the reporting quarter was RM 851.5 million, up 22.7% compared to the same period a year ago.

2. Profit attributable to shareholders was down 21%, ending the quarter at RM 83.2 million. Earnings per share (EPS) was 6.63 sen, a 21% decline from FY16’s second quarter.

3. Cash flow from operations for the six months ended 28 February 2017 came in at RM 64.6 million with capital expenditure clocking in around RM 213.1 million. This puts the glove maker in negative free cash flow territory to the tune of RM 148.5 million. In the same period a year ago, Top Glove had RM 204.4 million in free cash flow (RM 321.9 million in cash flow from operations and RM 117.4 million in capex).

4. As of 28 February 2017, Top Glove had cash and equivalents of RM 174.8 million and RM 418.5 million in borrowings.

In all, Top Glove did well to grow sales, but higher operating expenses dragged down its profit. The glove maker attributed its top-line growth to higher volume, a higher average selling price, and a 4.4% benefit from a stronger US dollar. However, Top Glove generated negative free cash flow in the quarter.

Operational highlights and what lies ahead

Tan Sri Dr Lim Wee Chai, Top Glove’s Executive Chairman, had the following commentary for the reporting quarter:

“We have delivered a healthy set of numbers for our 2QFY17, despite a challenging business environment with sharp increases in manufacturing cost. This shows that our approach of focusing on internal factors within our control, such as quality and cost efficiency, and not external factors, is the correct way forward for our business”

Top Glove is close to completing its Factory 30 (expected date of May 2017) which will increase its production capacity by 4.4 billion gloves per year.

Meanwhile, Factory 31 and Factory 32 are targeted to start operations in November 2017 and December 2018, respectively. The former will increase Top Glove’s capacity by 2.8 billion gloves while the latter will add 4.8 billion gloves in manufacturing capacity. As of today, the company can produce 48 billion gloves annually.

Top Glove also shared the following outlook in its earnings release:

“Looking ahead, the Group expects the business environment to be increasingly challenging, with competition intensifying on a larger scale. Given the high raw material price position, the Group will also have to rely on its good relationships with customers to share out the cost increases.

However, in line with industry practice, cost savings when raw material prices decrease, will also be passed on customers. Top Glove is of the view that raw materials prices will stabilise at current levels or possibly be on the downtrend, going forward.”

At today’s opening share price S$1.63, Top Glove had a trailing dividend yield of 2.8%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.