DESPITE the average selling price rising by 5 per cent, Top Glove Corp Bhd's (7113) first quarter net profit for financial year 2011 fell 20 per cent quarter-on-quarter and 45 per cent year-on-year to RM36 million.The disappointing start was mainly attributed to lower sales volume on continued client preference for just in time inventory, especially in powder-free latex examination gloves.
AmResearch Sdn Bhd said it maintained its "hold" rating on Top Glove but trimmed the fair value from RM5.40 previously.
The company's annualised first quarter financial year 2010 net profit accounted for only 14 per cent of its forecast and consensus numbers, while second quarter of financial year 2011 will likely see a flat sequential earnings growth, at best.
The sequential decline in earnings and margins underpin AmResearch's earlier concerns about growing earnings downside risks for glove manufacturers - mainly due to the persistent headwinds in high latex prices and a weak US dollar, amid a supply-driven overcapacity situation.
More importantly, it sees diminished earnings visibility for Top Glove in the next few quarters, given an absence of a meaningful rebound in orders.
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