Risks are a sharp appreciation of the Ringgit against the US$ and higher-than-expected increase in raw material prices.Top Glove is scheduled to release its 2QFY17 results on Thursday. In tandem with the overall improved sector outlook, the research house is expecting a sequentially stronger bottom line, mostly underpinned by higher average selling price (ASP).“Despite hefty increases in raw material prices, we believe Top Glove could pass through bulk of the increases, although the time lag factor could distort earnings delivery and an underlying margin recovery in the near term. Maintain Buy”, it said.The research house expects firmer sequential revenue growth for 2QFY17, likely to be in the region of +10% on-quarter. We look for 2QFY17 earnings to come in within the range of RM80mil to RM85mil, which implies 9%-16% in earnings growth, but is likely to be a significant decline on-year.“That said, our earlier core earnings expectation of RM397mil looks to be overly bullish; thus we are trimming our earnings by 11% for FY17. We are still hopeful of a stronger 2HFY17 given easing pricing pressure, although the persistently high raw materials could throw a spanner in the works on margin recovery as well as the time-lag factor, which would distort earnings delivery,” it said.

Source: The Star March 14, 2017 00:33 UTC