Top Glove’s buybacks fail to stop investors selling

The repurchases, which amount to some RM640m, appear contradictory with the glovemaker’s proposal for a dual listing in HKEx next year


TOP Glove Corp Bhd’s share buybacks appear to do little to instil confidence in nervous investors, thus raising questions on how they would be beneficial to shareholders, as well as contradicting its plans to sell shares abroad as the company battles Covid-19 infections among its workforce.

An analyst with a local brokerage said the share buybacks, amounting to some RM640 million or a third of its RM1.87 billion net profit for the last financial year, appeared to be somewhat contradictory with the glovemaker’s proposal for a dual listing in Hong Kong Exchange (HKEx) next year.

“When the company bought back its shares from the market, they returned cash to shareholders. Why would it give cash to shareholders when they had a plan to raise cash in Hong Kong listing next year? It is a bit contradictory,” the analyst, who spoke on the condition of anonymity, told The Malaysian Reserve (TMR).

The analyst said it is highly doubtful the share buybacks will benefit shareholders instead of returning the extra cash to shareholders.

“I think nobody would know to what levels the share price could go down to, so the question is why the rush to buy at current price levels,” the analyst said.

Top Glove’s shares ended 7.46% or 58 sen lower at RM7.20 a share yesterday, giving it a market capitalisation of RM59 billion. The company lost some RM4.7 billion in market value yesterday as the glovemaking complex came under renewed selling pressure with investors moving funds into banking stocks.

Top Glove’s net profit soared 417% year-on-year in the financial year 2020 (FY20) to RM1.87 billion, while revenue jumped to RM7.24 billion from RM4.8 billion in FY19 as demand for rubber gloves spiked and selling prices increased.

For the fourth quarter ended Aug 31, 2020, its net profit stood at RM1.29 billion compared to RM74.16 million last year, while revenue was RM3.1 billion versus RM1.18 billion previously.

The rally in Top Glove’s shares saw it become the second-most valuable company on Bursa Malaysia after Malayan Banking Bhd (Maybank) last month, but news of a potential Covid-19 vaccine in late-stage trials reversed the price trajectory and erased its market value with its ranking dropping to fourth place yesterday behind the likes of Maybank (first place), Public Bank Bhd (second place) and Tenaga Nasional Bhd (third place).

From a Top Glove management perspective, the analyst said repurchasing stock could be viewed as the best way to utilise cash in the company’s coffers apart from its production expansion plans.

As it is, the analyst added that Top Glove has a broad expansion plan for the next five years.

Top Glove has been particularly active buying back its stock since September, spending about RM634.2 million on some 86 million shares.

To date, the group has cumulative net outstanding treasury shares of over 85.7 million shares, according to an exchange filing last Friday.

Another analyst said Top Glove’s share buybacks do not pose a concern as the company is set to make strong profits.

“Top Glove is fundamentally strong with strong cashflow. I do not think there is a concern. The company previously stated its commitment to paying dividends,” the analyst, who preferred not to be named, told TMR.

Critics, particularly in the Western world, argued that stock buybacks at market value could push the price per share following fewer outstanding shares if the company opts to retire the shares it bought.

Certain quarters contend stock repurchasing may boost corporate executives’ fortune linked to their shareholding in the company.

Critics also pointed out extra cash used for buybacks could be utilised in other areas such as higher employee wages, capital expenditure and innovation.

Contrarily, buyback supporters said the money gained by shareholders would be reinvested in other companies and boost economic growth.

In the US, lawmakers have called for corporations that received federal aid amid the Covid-19 pandemic to be banned from buying their shares.

In March, the European Banking Authority (EBA) in a statement urged banks to follow prudent dividend and other distribution policies, including variable remuneration, and use capital for ensuring continuous financing to the economy.

The EBA said many competent authorities have accordingly communicated to banks the general expectations or engaged in bilateral dialogues in order to limit or refrain from dividend distribution and share buybacks.

On a separate matter, Top Glove’s workers’ hostel in Klang, Selangor, will be put under Enhanced Movement Control Order (EMCO), announced Senior Minister (Security Cluster) Datuk Seri Ismail Sabri Yaakob yesterday.

The EMCO at the workers’ dormitory will be imposed from today until Nov 30, following the breakout of a new cluster called Teratai.