Top Glove’s Shares Climbed More than 6% This Morning: What Could Be the Reason?

Founded in 1991, Top Glove (SGX: BVA) is today the world’s largest rubber glove manufacturer. Its gloves are used in the medical, food, and general industrial sectors. The company, which has a primary listing on Malaysia’s stock market, Bursa Malaysia, was dual-listed here in Singapore in June 2016.

As at the time of writing (10:24 am), Top Glove’s shares are changing hands at S$2.60 apiece, up 6.1% as compared to yesterday’s close of S$2.45. The Straits Times Index (SGX: ^STI), though, is down some 0.4%. What could be the reason(s) behind the share price rise?

One probable cause could be that the company achieved the highest-ever quarterly revenue of RM938.1 million for the first quarter ended 30 November 2017. The revenue represents an increase of 19.4% year-on-year, as announced by the company yesterday.

Sales volume saw a substantial growth of 17% as compared to last year, with nitrile glove sales growing the most. Raw material prices, however, increased for the quarter versus a year ago. The average natural rubber latex and nitrile latex prices were higher by 12% and 3%, respectively.

Despite the higher cost of raw materials, net profit surged 43.8% to RM105.4 million.

The improved results were due to stronger demand from developed and emerging markets, where glove demand is fast on the rise. Disruption in vinyl glove supply after China’s strict enforcement against polluting industries further increased demand for natural rubber and nitrile gloves.

Internally, new capacity came onstream. Also, continuous improvement initiatives such as automation, better production lines and cost-saving also contributed to the robust performance.

As at 30 November 2017, the firm had a net debt position of RM162.3 million, an increase from the net debt position of RM136.3 million seen at the end of August 2017.

Top Glove brought in a negative free cash flow of RM15.9 million as compared to a negative free cash flow of RM11.2 million during the first quarter of last year.

Going forward, Top Glove is constructing two new manufacturing facilities, which will be operational by December 2018. Upon completion, the firm’s production capacity will increase by 7.8 billion gloves per annum.

By the end of 2018, Top Glove is projected to have 31 glove factories, 628 production lines and a production capacity of 59.7 billion gloves per year. It has also commenced preparations for its condom manufacturing facility, which is expected to be operational by June 2018.

At the end of last month, the glove manufacturer announced that it had entered into negotiations to acquire Aspion Sdn Bhd. Upon completion of the purchase, Top Glove will become the world’s largest manufacturer of surgical gloves, on top of being the world’s largest manufacturer of gloves.

At the stock price of S$2.60, Top Glove has a trailing price-to-earnings ratio of 27 and a dividend yield of 1.8%.

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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 Sudhan P doesn’t own shares in any companies mentioned.