AMRESEARCH has slashed Top Glove Corp Bhd’s fair value to RM2.60 (from RM3.10 previously) primarily due to lower earnings forecast as opposed to environmental, social and governance (ESG)-related adjustment based on its ascribed three-star ESG rating.
The research house has slashed the glove maker’s FY2022/FY2023 earnings estimates by 11%/17% to RM1.65 bil/RM1.14 bil in view of reduction in gloves average selling price (ASP) assumptions.
“Our key assumptions for blended gloves ASP for FY2022/FY2023 are US$25.40/US$23 (previously US$26.2/US$23.90),” projected analyst Alan Lim Seong Chun in a company update.
“We arrive at the lower blended ASP assumptions after taking into account the stiff competition from Supermax Corp Bhd in non-US markets.”
Given that the US Customs and Border Protection has banned Supermax’s products from entering the US market, AmResearch expects Supermax to channel its gloves originally produced for the US market to non-US markets.
“This should result in stiffer competition for Top Glove rather than Hartalega Holdings Bhd and Kossan Rubber Industries Bhd in non-US markets,” added the research house.
Meanwhile, AmResearch is neutral with the world’s largest glove maker’s decision to trim the amount it plans to raise from its proposed Hong Kong listing by almost half to RM2.21 bil from RM4.17 bil it previously aimed to raise in April this year (or 71% lower from the initial RM7.7 bil it wanted to raise in February).
This is because the research house has already factored in the additional 793.5 million shares to be listed into its future earnings per share (EPS) estimates. The concern on its initial public offering (IPO) exercise previously was on the dilution of EPS from additional shares and not so much on the amount to be raised.
However, CGS-CIMB Research is slightly negative on the fund-rising exercise as it expects the exercise as still EPS dilutive in nature.
“Assuming that the 790.5 million new shares are issued (over-allotment option is exercised), the move will cut our FY2022-2024F EPS by 4.2%-6.0%,” justified analyst Walter Aw.
“Also, in our view, this fund-raising exercise is not entirely necessary given that Top Glove currently has net cash of RM2 bil (as of end-FY8/2022F). This is notwithstanding the company’s existing 200 million treasury shares based on our estimates after it spent some RM1.4 bil to buy back its own shares in the past one year.”
All-in-all, CGS-CIMB Research retained its “hold” rating on Top Glove with a target price of RM3.
A 10.11am, Top Glove was up 11 sen or 4.25% to RM2.70 with 3.3 million shares traded, thus valuing the company at RM22.16 bil. – Oct 29, 2021
