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Author: pBlue   |   Latest post: Sun, 17 Jan 2021, 1:23 PM

 

Top Glove Share Buy Back; Is it really counterproductive?

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Top Glove is in its second wave of share buybacks (SBB). Thus far a total of 133 million TG shares have been purchased at a cost of RM 983 million, with an average price of RM7.39. This represents 1.6% of Top Gloves total shares.

RM1 billion is a lot of money to be spent buying your own shares. Hence some have argued that these SBBs are a waste of money. It is futile attempt to maintain high share prices, and that the money should be better used to improve the company profitability and thus justify the high share prices.

I would like to point out a different interpretation for TG on-going SBB. Back in October, Topglove put out to the news media that it was evaluating a dual primary listing on the Hong Kong Exchange. Top Glove had gone so far as to hire banks to arrange for the listing.

 

Two sources, who cannot be named as the information is not yet public, said Citigroup Inc, China International Capital Corporation (CICC) and UBS will manage the listing, Reuters reported.

https://www.freemalaysiatoday.com/category/nation/2020/10/14/top-glove-hires-banks-for-potential-rm4-15-bil-hk-listing-says-report/

 

If TS Lim Wee Chai really intends to list in Hong Kong, he needs to have shares to sell. He can either issue new shares (and dilute the holdings of present shareholders), sell his own shares (and risk losing control of his company) or buy back shares at a low price and sell them once the share price has rebound. So from this perspective, the SBB is logical. It makes sense.

Furthermore the Hong Kong exchange has a market Cap, 5x fold larger than the Singapore Exchange and nearly 10x fold larger that BURSA. (2019: SEHK-USD3936bn / SGX: USD 787bn / KLSE: USD403bn). Top glove listing in a bigger stock exchange, will expose the company to more investors and a bigger pool of money. The limited pool of money in Malaysia and Singapore can only push TG stock price so far…RM8.xx might sound high for most Malaysians… but it is barely a USD2 stock.

So is Top Glove's share buy backs really counterproductive?  I would argue not. Tan Sri Lim Wee Chai has a plan for the growth of his company, a plan that requires a lot of cheap shares of his fantastically profitable company. Luckily Malaysians are there to sell it to him cheeply.

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Labels: TOPGLOV

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Chart Stock Name Last Change Volume 
TOPGLOV 6.48 +0.23 (3.68%) 32,178,200 

  3 people like this.
 
Jimmy07 How can tg bskl investor benefit from hk listing? Thank you
25/11/2020 6:48 AM


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