PP 7767/09/2010(025354)

17 March 2010

Malaysia Corporate Highlights

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

Com pany Upda te

17 March 2010
MARKET DATELINE

Top Glove Corporation Share Price

Fair Value
:
:
RM12.30
RM15.50
Recom : Outperform
Medi-Flex Back In The Black
(Maintained)

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 21.5 - 4.6 net cash 22.6 2.4
2010F 2,062.3 262.7 89.0 89.0 55.3 13.8 80.0 3.8 net cash 28.7 3.7
2011F 2,342.1 283.8 96.2 96.2 8.1 12.8 92.0 3.2 net cash 26.0 3.8
2012F 2,648.1 300.6 101.9 101.9 5.9 12.1 102.0 2.8 net cash 23.6 4.1
# Excludes exceptional items
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

Issued Capital (m shares) 307.4

♦ Back in the black. Medi-Flex (Not rated), reported 1HFY10 net profit of Market Cap(RMm) 3,781.6
RM5.4m (against a net loss of RM2.5m in 1HFY09). We believe the Daily Trading Vol (m shs) 0.6
improvement in earnings was largely due to operating leverage effects on 52wk Price Range (RM) 4.675-12.30

the back of higher utilisation rates, which more than offset the higher latex Major Shareholders: (%)
Tan Sri Dr Lim & family 38.6
prices (+27.4% yoy) and weaker US$ against RM (-3.9% yoy).
Overlook Partners Fund 5.0
♦ HoH, revenue rose by 62.3%. HoH, revenue rose by 62.3% on the back Matthews International 4.8

of a higher average utilisation rate of 90% vs. 60-70% in 2HFY09. We FYE Aug FY10 FY11 FY12
understand that this was largely due to the use of Medi-Flex’s existing EPS chg (%) - - -
production lines to produce medical-related gloves for Top Glove’s existing Var to Cons (%) 11.3 4.6 (0.1)
customers given that Top Glove itself was already running at close to full
PE Band Chart
capacity. Medi-Flex recorded an operating profit of RM6.6m for the period
(vs. operating loss of RM1.7m in 2HFY09) on the back of: 1) operating
leverage effects due to the higher utilisation rate; and 2) production of
PER = 25x
higher value products such as powder-free latex and nitrile medical gloves. PER = 20x
Consequently, 1HFY10 net profit jumped to RM5.4m as compared to a core PER = 15x
PER = 10x
net loss of RM2.1m in 2HFY09.

♦ Outlook. Given the strong demand for medical gloves, Top Glove plans to
add another eight new production lines at Medi-Flex’s existing factory, F18.
These new lines are interchangeable and can be used to produce clean Relative Performance To FBM KLCI
room as well, which remains as Medi-Flex’s main product line.
Management remains optimistic that demand for clean room gloves would
return as economic conditions continue to recover.
Top Glove
♦ 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 its capacity FBM KLCI
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 have retained both our indicative fair value of David Chong, CFA
(603) 9280 2179
RM15.50 (based on target CY10 PER of 17x) and Outperform call on the
david.chong@rhb.com.my
stock.

Please read important disclosures at the end of this report.

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Table 2: Results Review For Medi-Flex

HoH YoY
FYE Aug (RMm) 1H09 2H09 1H10 (%) (%) Comments
Revenue 23.8 32.0 52.0 62.3 +>100 Yoy increase on the back of higher utilisation rate
and diverting its existing lines to produce medical
related gloves.
Cost of Sales (23.6) (31.7) (44.7) 41.4 89.3
Gross profit 0.2 0.4 7.2 +>100 +>100

Other operating (expenses) /

income 0.4 (0.1) 2.0 +>100 +>100
Selling and distribution expenses (0.5) (0.2) (0.7) +>100 +>100

General and administrative (1.7) (1.8) (2.0) 6.9 17.8

expenses
Profit/ (Loss) from operations (1.6) (1.7) 6.6 +>100 +>100 Yoy improvement largely due to operating leverage
effects on the back of higher utilisation rates. This
was despite higher latex prices (+27.4% yoy) and
weaker US$ against RM (-3.9% yoy).
Finance costs (0.2) (0.0) - n.m. n.m.
Share of associates results (0.6) (0.3) (1.1) +>100 75.0
Exceptionals - (4.0) - n.m. n.m. Relates to write-off in inventory and property.
Profit/ (Loss) before tax (2.5) (6.0) 5.4 +>100 +>100
Tax - - - n.m. n.m.
Net profit / (Net loss) (2.5) (6.0) 5.4 +>100 +>100
Core net profit/ (core net loss) (2.5) (2.1) 5.4 +>100 +>100
Source: Company Data

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

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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.

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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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