Top Glove losing investor confidence?

by NUR HANANI AZMAN / pic by MUHD AMIN NAHARUL

INVESTOR concerns over the US Customs and Border Protection’s detention order, allegations of labour abuse and Top Glove Corp Bhd’s recent decision to downsize its Hong Kong IPO, has put a cap on the stock’s rebound in recent weeks after the company’s shares fell to its lowest in 10 months at the end of March.

Analysts said Top Glove’s share price recovery has been mild compared to Supermax Corp Bhd and Kossan Rubber Industries Bhd, and is a sign money is flowing away from the world’s largest rubber glovemaker.

“The reduction in shares offering of its Hong Kong listing might be another sign of cooling investor’s interest in the company,” a glove analyst who spoke on condition of anonymity told The Malaysian Reserve (TMR).

Top Glove recently announced it has decided to revise down its share issuance size for its Hong Kong IPO to 793.5 million from 1.49 billion shares initially on grounds to “minimise dilution” to protect its existing shareholders’ interest.

The smaller IPO will now raise an estimated RM4.17 billion, down from RM7.7 billion initially. The analyst, however, believes no value will be unlocked upon the listing exercise due to the company’s old business structure.

“Malaysian companies listed in HK are out of radar mainly because of its old business structure (heavy asset, high depreciation and slower growth).

“People are now investing in companies like Alibaba Group Holding Ltd, Tencent Holdings Ltd, JD.com Inc, which have dynamic new economy business models,” the analyst said.

Another analyst, who also requested anonymity, said while Top Glove has been riding on high value throughout the Covid-19 pandemic, investors remain sceptical if the company can sustain its performance post-pandemic despite the Hong Kong listing.

“While the reason given for the reduced Hong Kong share issuance size was for the best interest of its existing shareholders, I believe it was also due to the outlook of glove demand,” the analyst told TMR in an email reply.

“We have already seen the group making a downward revision on proceeds it planned to use on the expansion of its production capacity and to develop a data-driven manufacturing system by RM2.12 million.

“We believe this was due to a soothing glove demand outlook as average selling prices have reached their peak levels in the second quarter of 2021 amid higher vaccination rates globally,” the analyst said.

MIDF Amanah Investment Bank Bhd analyst Ng Bei Shan, in a recent note, was positive on Top Glove’s move to downsize its Hong Kong IPO as the dilutive impact to its earnings per share is estimated to be about 9% compared to about 15%, previously.

“Top Glove will still be able to boost its corporate profile in the Greater China and international market through the listing in Hong Kong,” she said.

Ng expects the exercise to be delayed slightly, possibly by about a month, due to the changes. Top Glove has previously targeted for the listing to take place by May or June this year.

“We believe Top Glove will be able to fund its other expansion requirements given its strong cashflow and its net cash of about RM4 billion,” she said.

MIDF made no changes to Top Glove’s earnings estimates pending the completion of the exercise, maintaining its ‘Buy’ call with an unchanged target price of RM8.29.

“Our theoretical ex-price will be adjusted to RM7.54, compared to RM6.99 previously, if the over-allotment option is fully taken up for its dual-listing plan on the Hong Kong Stock Exchange,” Ng said.