TOP Glove Corp Bhd dual listing plan entailing 1.5 billion new shares with potential of raising RM7.7 bil in proceeds on the Stock Exchange of Hong Kong has received mixed review from stock market analysts.
Despite Top Glove’s shares can be traded in Malaysia, Singapore and Hong Kong, once the exercise gets underway, CGS-CIMB is negative on the proposed exercise as it is seen as EPS (earnings per share) dilutive.
“Assuming that the over-allotment option is exercised, this exercise will reduce our FY2021-2023F EPS by 11.2-15.1%,” justified analyst Walter Aw in a company update.
“In our view, this fund-raising exercise is avoidable as Top Glove’s expected stellar FY2021-2022F results should be able to support its capex plans, while it has zero gearing currently.”
Moreover, the research house pointed to the fact that Top Glove has recently announced a 20% special dividend for the remaining three quarters in FY2021 on top of an existing dividend policy of 50%.
“Also, it spent RM1.4 bil to conduct share buybacks of 200 million shares in the past one year,” noted Aw.
All-in, CGS-CIMB Research, while maintained its “add” rating on the world’s largest glove maker, has lowered its target price by 12% to RM7.80 (from RM8.90 previously) due to concerns over:
- Ongoing ESG issues (treatment of foreign labour); and
- Unresolved .US Customs and Border Protection (CBP) ban on two of Top Glove’s subsidiaries since July last year.
“Assuming that this exercise is completed, our theoretical target price would be at RM6.80 (based on enlarged share base of 9.7 billion). We still retain our “add” call,” added CGS-CIMB Research.
On the contrary, TA Securities Research is positive on the proposed dual primary listing on the basis that it increases Top Glove’s investor base in Hong Kong and North Asia.
“Moreover, the Hong Kong stock exchange is much more developed than Bursa Malaysia in terms of market depth and breadth,” reckoned analyst Tan Kong Jin.
Based on the research house’s back-of-the-envelope calculation, assuming completion of the exercise in end-FY2021, this would bolster Top Glove’s net cash position from RM1.2 bil as of end-1Q FY2021 to over RM8.9 bil.
“However, we estimate EPS dilution of circa-15% in FY2021 post completion of dual-listing exercise,” projected Tan.
As a whole, TA Securities Research retained its “buy” call on Top Glove but slashed its target price to RM7.80/share (from RM8.84 previously).
“Key downside risk include higher-than-expected drop in average selling price (ASP) and weakening of the US dollar against the ringgit,” added the research house..
At 11.54am, Top Glove was down 32 sen or 6.11% to RM4.92 with 32.84 million shares traded, thus valuing the company at RM40.36 bil. – March 1, 2021
