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TOPG: Operational Efficiencies Drive Earnings Beyond Expectations
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading industry player has reported a core net profit of RM39.2 million for its first quarter of fiscal year 2026 (1QFY26), a significant turnaround from the RM1.7 million loss recorded in the corresponding quarter of fiscal year 2025. This performance aligns with both internal and consensus full-year estimates, accounting for 28% and 25% respectively, despite a marginal 0.3% year-on-year (YoY) decline in revenue.
Performance Review
The positive financial outcome was primarily attributed to robust operational efficiencies and easing raw material costs, which collectively led to a substantial 7.7 percentage point improvement in the EBITDA margin YoY. Sales volumes saw a notable 17% YoY increase, largely propelled by a strong 117% YoY surge in demand from the United States, which now constitutes 33% of total export volumes, up from 18% in 1QFY25. The average utilisation rate also improved to 73% in 1QFY26 from 64% in 1QFY25, further contributing to cost optimization.
Despite these gains, the company faced headwinds from a softer average selling price (ASP), which declined by 4% YoY to US$16-17 per thousand pieces. On a quarter-on-quarter (QoQ) basis, ASP eased by approximately 3%, although sales volumes still rose by 4% QoQ to 11.3 billion pieces, mainly due to a 9% QoQ increase in natural rubber latex glove volumes.
Future Outlook
Looking ahead, the company anticipates an improvement in sales from Europe in 2QFY26, bolstered by stronger recent order intakes. To meet rising demand, the company plans to recommission four additional factories, which will increase its total active capacity to 70 billion pieces per annum by the end of fiscal year 2026, up from the current 65 billion. Management also expects raw material costs to trend lower in 2QFY26, supporting further margin expansion and earnings growth through enhanced production cost efficiency driven by higher plant utilisation.
Analyst Recommendation
The investment bank maintains its HOLD rating on the stock, with an unchanged 12-month target price of RM0.67. Potential upside risks include stronger-than-expected sales volume and ASP, while downside risks encompass aggressive capacity expansion from Chinese manufacturers and a continued decline in ASPs.
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