PETALING JAYA: Analysts have mixed views on the growth prospects of Top Glove Corp Bhd. They pointed out that while stable latex prices would help the company, lower-than-expected sales could result in slower growth of the world's largest rubber glove manufacturer.

These views followed a briefing by Top Glove on Tuesday, when the management announced its aim to double net profit and revenue in five years as well as to increase its global market share to 30% by year-end from the current 26.7%.

OSK Research concurred with Top Glove's opinion that the worst was over for the industry and that the company was conservatively looking at 30% growth in net profit for its financial year ending Aug 31, 2012 (FY12), assuming that latex prices and foreign exchange rates did not fluctuate significantly.

“We find this guidance reasonable since the company's first-quarter FY12 core net profit already exceeded RM45mil, making up more than 30% of Top Glove's latest guided numbers.

“Also, we believe its second-quarter FY12 results may be even better from three perspectives, namely, the average latex price in first quarter was still high at RM8.34 per kg versus RM6.37 per kg now, the $US/RM average rate in first quarter was 3.12, still slightly lower than the present 3.14 and higher sales anticipated due to last-minute buying before rubber trees enter the wintering season,” it said in a report yesterday.

Top Glove posted a net profit of RM113.1mil on the back of a revenue of RM2.05bil for the financial year ended August 31 2011.

OSK pointed out that Top Glove had a track record of rewarding shareholders.

“For example, despite its targeted dividend payout ratio of 40%, its management paid out 60% in FY11 to ensure that the 11 sen dividend matched its FY09 payout,” it said.

OSK upgrade its call on Top Glove to “buy” from “neutral”.

“As we believe the worst is over for Top Glove, we have ticked up our price-to-earnings ratio (PE) valuation on the stock to 20 times from 17 times previously.

The rubber glove industry was dampened with increased competition and high latex price last year. Nevertheless, the environment has somewhat stablised where in the last eight months, natural rubber latex prices have slided from an all-time high of RM10.99 per kg by some 40% to about RM6 per kg.

In contrast, ECM Libra Investment Research was less sanguine on Top Glove's growth prospects.

“While the management targets to double sales and earnings over the next five years, we believe this would be difficult to achieve in the next 12 months considering the tough operating environment and intense competition ahead.

“Moreover, demand is seen leaning towards nitrile gloves whereas Top Glove is skewed towards natural rubber,” it said in a report.

In its bid to venture into rubber plantation, ECM Libra said Top Glove was heading towards the right direction.

“The move would ensure sufficient latex supply, complement its concentrated latex plant and allow Top Glove to produce its own latex instead of buying from a third-party supplier,” it said.

Overall, ECM Libra downgraded its call on the stock to “sell” from “hold”.

Top Glove share price closed higher yesterday by 19 sen to RM5.25.