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Trying to Make Sense Bursa Investments

Author: Ben Tan   |   Latest post: Sat, 17 Apr 2021, 11:50 AM

 

Top Glove: Notes on ASP from Application Proof for Hong Kong Listing

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On Friday (26 February), Top Glove made the long-awaited announcement of its listing on the Hong Kong Stock Exchange (HKEX). You can read the official announcement here. Together with the announcement, Top Glove submitted a required Application Proof to HKEX. It is a 750 pages document and it gives arguably the most detailed description of the business of Top Glove one could ask for. You can find the full document here.

There are still a number of material unknowns surrounding the listing, so discussing the details at this point would be premature. However, the Application Proof contains a lot of important details about the company and the glove industry. As had done Intco Medical, when they submitted their Application Proof last month (you can find it here), Top Glove has commissioned Frost & Sullivan to conduct a market research on the industry and on the company. The details of this research are provided on pages 84-108 (industry) and pages 109-132 (Top Glove's business) in the Application Proof, and due to lack of space, for now we will comment only on the interesting parts of the industry section.

Average Selling Prices

This is the buzz word nowadays, and while it depends on a large number of other variables (i.e. it's not necessarily an exact figure), let's focus on the corresponding data provided with Frost & Sullivan's report. The report has segmented glove prices based on material they are made of (nitrile, latex, vynil) and based on application (medical and non-medical). Below is the graph with projections up to CY2025:

From Top Glove's previous announcements (for instance see their latest investor presentation from Friday here), we know that the company will have the following production capacity by type of gloves and by year:

Capacity Current End 2021 End 2022 End 2023 End 2024 End 2025
Nitrile 45 60.3 81.8 96.9 112.1 127.2
Latex 41 41.3 41.3 42.6 44 45.3
Vinyl 7 10.4 12.9 15.5 17.9 20.5
TOTAL 93 112 136 155 174 193

 

For simplicity, as detailed data is not available for the exact plans for 2023 and 2024, and because only the total capacity is known for 2025, I have made the following assumptions for these years:

- From 2022 to 2025, the total capacity is expected to increase by 70% (known)

- The total increase in capacity from 2020 to 2022 is planned to be 68%, of which 55% for nitrile gloves, 7% for latex gloves, and 55% for vinyl gloves.

- Thus, it would be a fair assumption that the increase in capacity will be similar for each segment. My exact assumption is that the nitrile capacity will increase by 60% to 127.2 billion pieces, the vinyl capacity will increase by 60% to 20.5 billion pieces, and the latex capacity will increase by 10% to 45.3 billion pieces.

- Even distribution of increase in capacity year-on-year is assumed.

Based on the aforementioned ASP projections, and based on average utilization rate of 86%, we get the following sales revenue projections for each calendar year (+ in RM, assuming USD1 = RM4):

CY2021 = $6.251 billion (RM25.007 billion)

CY2022 = $4.870 billion (RM19.480 billion)

CY2023 = $3,871 billion (RM15.484 billion)

CY2024 = $3.866 billion (RM15.462 billion)

CY2025 = $3.929 billion (RM15.715 billion)

TOTAL (5 years) = $22.788 billion (RM91.150 billion)

Note that these are calendar year projections and not financial year projections. The financial year for Top Glove starts in September, so one quarter of the financial year is always within the previous calendar year.

Enterprise Value

Based on financial analysts' projections, the net profit of Top Glove will be approximately 50% in 2021, 30% in 2022, and 20% in 2023. Let's assume it will go down to 15% in 2024, and 10% in 2025. In this case the net profit for each calendar year should be:

CY2021 = RM12.503 billion

CY2022 = RM5.844 billion

CY2023 = RM3.097 billion

CY2024 = RM2.319 billion

CY2025 = RM1.572 billion

The company also has RM1.21 billion cash as of the latest financial results from end of November 2020.

Let's very conservatively assume that the earnings growth is going to be 5% per year after 2025. Assuming weighted average cost of capital of 7% for Top Glove (see here), we get the following enterprise present value based on discounted cash flow model: RM82.44 billion.

There are a few important notes that must be taken into account:

- I use net profit to derive the final figure. This is not the right way to use the DCF model (in a nutshell it is not a DCF per se). You have to figure out the free cash flow for each year. However, deriving an accurate figure for free cash flow is even harder, and requires a lot more assumptions. Additionally, different versions of the DCF use variations of what they consider "free cash flow". Thus, I have most certainly taken the easy way and I accept any criticism in advance. In this sense, the figure might be on the optimistic side, even though some of my assumptions are conservative. Bear in mind that Top Glove has a small amount of outstanding debt, for instance.

- As you can see, in order to arrive at this final figure, a number of assumptions need to be made anyhow. Most of the assumptions made are based on other people's assumptions or data (for instance, assumptions based on financial analysts' consensus). Thus, different assumptions might result in (very) different final valuations.

- The discounted cash flow model has the disadvantage of requiring precise figures. This is the reason why we have used as few extra assumptions as possible, and whenever possible we have been relying on publicly available data.

Important disclaimer: Any views expressed are for informational and discussion purposes only. None of this information is intended as, and must not be understood as, a source of advice. It is imperative that you always do your own research and that you make any decisions based on your personal situation and your own personal understanding.

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Chart Stock Name Last Change Volume 
TOPGLOV 5.57 +0.13 (2.39%) 62,300,000 

  12 people like this.
 
pjseow Ben Tan , thanks for the detailed analysis. I agreed with you that there are many assumptions using DCF method because after we added all the discounted cash based on some finite number of years ,there is still a terminal value for the company which requires assumptions. You arrived at a discounted enterprise value of 105.9 billion present value . If I divide this value with current 8.2 billion TG shares, the value per share is 105.9/8.2 . This give a value of rm 12.9 per share. In view of the coming listing of another 1.5 billion shares at presumably 5.20 , The total number of shares will increase to 9.7 billion and the total cash will be 105.9 + 7.8 = 113.7 billions. The current value
per share after listing will be 113.7/9.7 =
11.7 . This could be on the high side compared with RHB tgt price of 8.45 which also use DCF method.
01/03/2021 7:31 AM
pjseow Newbie444, PE 27 in fy 2025 is neither cheap nor expensive. PE 27 is reasonable based on TG historical PE at stabilised state. Dont forget , you will teceive SUPER dividend of rm 1.06 in 2021, rm 0.5 in 2022,rm 0.26 in 2023 and rm 0.2 in 2024. The total dividend add up to rm 2.02 . This total us almost 40 % of current share price .
01/03/2021 8:20 AM
winterwolf Just a brief note on the two analysts that gave their "valuable" opinions on national TV channel.

What is bottom fishing ? For a share like Topglove that dropped from 8 to 5, is 5 a bottom ? where is the bottom ? Is now not the bottom ? Topglove was trading at about 4.50 to 5.00 pre pandemic, though there was a 2:1 bonus issue in between, yet what was the quarter profit declared then ? what is the profit now and also the projected profit in 2025 ? All these are glaringly obvious.

For the 2nd analysts, i guess a few dose of fear mongering helps in bottom fishing ? Some how, the word anal-yst does makes sense at time.

To Ben Tan, thank you very much for your analysis. it helps many others out there to make investment decisions.
01/03/2021 8:28 AM
pjseow Ben Tan detailed analysis is able to answer many questions on investors mind. The ASP will peak in 2021 and tapered off to 2025 . Look at the projected earning in 2025. It is 4.2 x of 2019 earning. This projected earning is based on a very reasonable post pandemic ASP , doubling of capacity ,utilization.rate of 86 % , exchange rate of 4 and net profit margin of 10 %. Today TG share price is less than 3x of pre pandemic but its projected earning in 2025 is 4x of pre pandemic in 2019. Dont forget the super duper dividend of about rm 2.02 you can get in the next 4 years based on 70 % payout.
01/03/2021 8:36 AM
CharlesT The 70% div policy may only for FY 2021 or another year 2022 I think

To be more conservative apply 50% normal Div policy will do
01/03/2021 8:46 AM
Ben Tan Bamboo Green, honestlee, FCTITAN, spectre007, CharlesT, newbie4444, pjseow, winterwolf, thank you for your comments.

Bamboo Green, this appears to be the same video we discussed above. Price war can occur when there is oversupply in a market. For an oversupply to occur, there needs to be a very low entry barrier, like with the protective masks business for instance. That is not the case with gloves.

FCTITAN, unfortunately I don't know much about the station or about the commentators they had invited. It is possible that the commentator you mentioned was just unprepared and misinformed.

spectre007 and CharlesT, based on 70% dividend payout, the dividend for FY21 should come at around RM0.95 to RM1.05.

pjseow, yes, thanks for pointing out RHB's analysis. I am still unclear on some of the assumptions they have made.

winterwolf, from what I am hearing, the commentator has been grossly unprepared. Whether that has been done on purpose, or if that person was let loose on fear mongering exercise, unfortunately we cannot know.
01/03/2021 9:06 AM
skyz Appreciate your effort to drill in details supported with fact and figures. Thank you for adding value to the i3 investors discussion forum. Keep up the good work!
01/03/2021 9:45 AM
Ben Tan skyz, CharlesT, thank you for your comments.

CharlesT, yes it would depend on how you calculate the dividends. Here's an example calculation for CY21 (the above note was about FY21) dividend calculation:

- Assume even income distribution for the 4 quarters of the calendar year.
- Assume 70% dividend payout for FY21 and 50% dividend payout for FY22 (conservative).
- RM12.503 billion net profit for the year = RM3.12 billion per quarter.
- Q1 of the CY will be done at 8.2 billion shares; the next 3 quarters will be done at 9.7 billion shares.

Therefore:
- Q1 DPS = RM0.266
- Q2 DPS = RM0.225
- Q3 DPS = RM0.225
- Q4 DPS = RM0.161
TOTAL DPS for CY21 = RM0.877
01/03/2021 10:43 AM
CharlesT yeap, it will be less if u include the 15% new shares to be IPOed in HK

It's always good to be more conservative
01/03/2021 10:44 AM
Ben Tan CharlesT, the above calculation is based on +1.5 billion shares for Q2, Q3, and Q4.
01/03/2021 10:45 AM
CharlesT Another possible plus point could be extending 70% div policy to 2022 or longer in view of the additional funds fm HK IPO
01/03/2021 10:48 AM
CharlesT Do yr own calculation n place yr bets. Good luck.
01/03/2021 10:49 AM
Ben Tan CharlesT, yes, the above calculation is based on all the most conservative assumptions I could think of:

- Extra public listings coming in before 2QCY21 ends (i.e. they get a cut from the dividends)

- Dividend payout drops to 50% in FY22 even though the company will be very cash-rich

- Earnings are distributed evenly, even though Q4 is theoretically supposed to be weaker.
01/03/2021 10:50 AM
pjseow Ben, although the 7.8 billion recd from HK listing is not considered as earning, it is still part of "income " recd as cash. It could be used to pay dividend also.
01/03/2021 10:54 AM
Ben Tan pjseow, thank you for your comment.

Yes, but I want to make any assumptions in a conservative manner, whenever possible.
01/03/2021 11:00 AM
observatory Ben, I view the decision by Top Glove to list in HK as full of self-contradiction!

Top Glove bought back its share at a price up to RM8 in Sep last year. The signal sent by management then was Top Glove was undervalued at RM8.

Later Top Glove announced special dividends of up to 70% of profit, which means it will return billions of cash to shareholders. The signal sent by management is they are flush with cash and more cash is on the way in the coming quarters. The signal sent is, even after their RM10 billion Capex plan, they still have so much cash on hand that they decide tp return to shareholders.

Now they have finally submitted for HK Listing, right on the heel of Intco Medical. The news report that Top Glove plans wants to issue 1.5 billion new shares and raises up to RM7.7 billion. This works out to be a listing price up to roughly 7.7/1.5 = RM5.13 per share.

https://www.theedgemarkets.com/article/top-glove-plans-float-shares-hong-kong-raise-rm77-billion

Contradiction #1 – If RM8 is undervalued in Sep, why raise a massive amount of equity capital at RM5.13 less than 6 months later, and dilute the existing shareholders in the process?

Has the business fundamental turned so bad in 6 months such that what's worth more than RM8 in Sep last year worths less 2/3 now?

The impact is not confined to Top Glove shareholders. Recall last year, the Tropicana board, where Tan Sri Lim was the chairman and substantial shareholder, also bought Top Glove shares at a much higher price then (although Tan Sri abstained from the vote). Should Tropicana shareholders now wish that their board should have just applied for the HK IPO at a cheaper price?

Contradiction #2 – If Top Gloves could afford to pay back billions of special dividends to its Malaysian shareholders, why the decision to raise RM7.7 billion in HK? The net effect is while paying RM1 or so special dividend to Malaysian shareholders, at the same time dilute their equity by another 15% to 20%. Picking the left pocket to give to the right pocket?

To me this feels like either management incompetence, or lack of sincerity, or both!

At least the gung ho Intco Medical is very consistent with their message. They think they can become number 1 and they go all out for it by raising as much capital and expanding as fast as they can. Their shareholders who buy into them cannot complain later as they have been warned.

Closer to home, the no drama Hartalega management has provided a much better example of good corporate governance – no dramatic SBB or special dividends or foreign listing; just focus on the business and deliver results.

This incident has illustrated again why Top Glove suffers from a valuation discount while Hartalega enjoys a premium!
01/03/2021 1:19 PM
CharlesT The best thing for TG is to delist fm Bursa n relist in HK...making more sense
01/03/2021 1:31 PM
Ben Tan observatory, as always thank you for your detailed comment.

First, note that the IPO price is not settled. Second, you are missing the bigger picture, although it must be harder to miss it as you are commenting under this particular post.

Objectively speaking, Top Glove doesn't need the IPO. The company will generate enough cash to finance its capex plans without it. If you read through the details of the proposed usage of the funds, you will realize that. As mentioned in my post above, we still don't have enough information on the IPO to draw final conclusions, but the entire exercise will most likely just boil down to a movement of funds. This is precisely why Top Glove is using cash on hand to pay bonus dividend and for share repurchases. I expect now that the listing exercise has been confirmed, SBB will become more aggressive, and it is possible that extra bonus dividend might be declared. In other words, from a purely business point of view, the two events will cancel out each other.

The reason why the IPO is happening is because the HKEX is approximately 5 times larger than Bursa+SGX taken together, and it gives the company direct exposure to US and China investors. Nothing more than that. Tapping into a larger market will make it easier to potentially raise fund in future, and of course it would mean that the company will trade closer to its fundamental value. The company has simply grown too big for Bursa (and SGX).

Comparison with Intco in this situation are unfair. Intco starts from the position of a company approximately 10 times smaller than Top Glove (as of last year). It has to be entirely on the aggressive if it wants to expand as much as it wants. That's not the case with Top Glove.
01/03/2021 1:31 PM
Stockisnotfun lol you all got digest carefully what they say or not in the video? In summary, both analyst agreed gloves will still have further space to drop before covid ended.

One say the glove will have price war and another say we should buy the glove after covid ended when is low. So simple to understand why try to prove the analyst is wrong or not? Both already agree there will be further downside risk in upcoming period until covid ended. There's the message they trying to deliver. That simple.
01/03/2021 3:07 PM
observatory Ben, thank you for your response. I forgot to say earlier that I appreciate your effort in pulling the various information together for the benefit of readers. The info is useful, even though we seem to draw different conclusions on the merits of Top Glove management.

I agree the HK IPO price has not been settled. The investment bankers need to touch base with potential investors to work out a mutually acceptable price. There is always the happy possibility that TG share price in Bursa rebounds sharply above RM8 and somehow Top Glove successfully raises capital in HK close to that valuation.

However, based on Top Glove announcement to Bursa on 26 Feb, the company proposes “issuance of up to 1,495,000,000 new Top Glove Shares raising up to HKD14.95 billion (equivalent to approximately up to RM7.77 billion)”

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3133602

In other words, even if the market price remains sluggish around RM5, the management still plans to go ahead with the HK IPO at a price up to ~RM7,770m/ 1,495m = RM5.2. That is the stated price in their announcement. After spending a lot of money on the IPO, I doubt the management will abandon the IPO if they can get their stated price (unless they don't receive the necessary approvals)

As such, the management needs to answer why they spent up to RM1.4 billion of shareholder funds to buy back shares at higher prices earlier; and now issue billions of new shares at a lower price, grossly diluting their existing shareholders? Why buy high and sell low?

Of course, I understand the logic that a listing at HKEX could raise the company profile and facilitate future fundraising. But Top Glove management could still have gone for the HK IPO without the preceding drama of the most aggressive SBB in Bursa history, done at a much higher price. How does it benefit Top Glove long-term shareholders? I also fail to see how the high price drama earlier would impress future HK investors.

Now with hindsight, this entire exercise resembles a movement of funds. I’m not sure whether this is by plan or by accident. If it’s by plan, it means the Top Glove management has not been entirely truthful in the past since their aggressive SBB actions have created the impression of stock being undervalued. Only now they say they are willing to list at a much lower price. What is the message to new shareholders who bought at RM7, 8 or above based on management past SBB action?

If it’s by accident, Top Glove will need to brush up on its financial management skill.
01/03/2021 4:33 PM
Stockisnotfun 來自其他手套製造企業的競爭的影響以及我們分銷渠道中買家議價能力的提高可能使我們
的價格下降,使我們無法提高價格以抵銷增加的成本,或增加資本投資或營銷和其他
支出。此外,我們可能無法預測或充分應對消費者偏好的變化或新的營銷和銷售形式
的發展

This is the price war that the analyst talking about. Seems like the analyst got read from their toplove HK IPO file in risk section. He is actually stated the fact from the IPO file.

https://www1.hkexnews.hk/app/sehk/2021/103230/documents/sehk21022601983_c.pdf
Page 37
01/03/2021 7:33 PM
MF0001 ASK URSELF

IS THIS PRICE WORTH THE PRICE U PAY FOR

FOR ME

I LIKED IT :DDDDDDDDDDDDDDDDDDDDDDDDDDDD

TOO CHEAP TO IGNORE

WHAT IS THE DEFINITION OF CHEAP?

CANNOT DEFINE

COZ EVERYONE CHEAP IS DIFFERENT

SOME IS 0.10

SOME IS 1.00

SOME IS 10.00

SO?

ALL IN SO MUCH IN FUNDAMENTAL

IN THE END APA CAKAP THE VALUE?

:DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD

TOO MUCH TEXT BOOK NO GOOD :DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD
01/03/2021 7:57 PM
OrlandoOilSemiconT Hmmmm... besides d SBB Tan Sri himself has been buying at prices higher thn RM 5.2?? Wassup?? Wat is going on?
01/03/2021 8:20 PM
OrlandoOilSemiconT Under estimated d short sellers?
01/03/2021 8:24 PM
OrlandoOilSemiconT How to explain other glove counters too dropped like a stone??
01/03/2021 8:39 PM
Ben Tan Stockisnotfun, observatory, MF0001, OrlandoOilSemiconT, thank you for your comments.

observatory, I can definitely see where you are coming from and at a glance it definitely seems odd that the company would be buying back shares at higher price and then asking markets for capital at a lower price. I have been keeping tabs of the share buybacks since last year, and the VWAP is RM7.11 (simple average = RM7.05). Only a minuscule amount of shares have been bought at price RM8.

My opinion is that no one has expected that at the time the listing will get announced, the market price will be at the current level. There is no way for them to issue the notice other than at a price near to the market price as of the last day before the announcement has been made. As discussed, RM5.20 is not the actual price at IPO though. We will have to wait and see how the book building process goes. On management's skills, I think they were genuinely surprised and I believe TSLWC and the BoD buying shares with their own money is a way to prove sincerity of intentions. As described in my post above, the current price, or really any price over the last several months, makes little economic sense.

OrlandoOilSemiconT, you are raising a good point. If the underlying logic is that TG is falling today due to the HK listing, then logic is failing with regards to the other counters falling. In fact, funnily TG fell at the same rate as Harta, and to a much smaller extent than Supermax or the "second tier" glove companies.
01/03/2021 9:07 PM
Cnlim If you are a long term holder n have excess money to invest top gloves is very good but most of the retailers are not long terms investors n most retailers are gamblers n treat klse as casino
01/03/2021 9:22 PM
observatory Hi Ben, thanks for your reply again. I too would like to believe Tan Sri Lim is sincere he has bought a large number of shares with his own money. Perhaps he just miscalculated in the early euphoria when Top Glove almost overtook Maybank's top spot in KLCI, something I wish he had never said in the public. Anyway, this incident has cast doubt on my view of the company (as compared to say Harta)

Let’s get back to your DCF calculation. I’ve reproduced it and have a few comments.

You’ve basically adopted a Free Cash Flow to Firm method, but using projected profit to replace the projected cash flow. I too think this rough estimate is good enough to get an approximate value.

By using the assumed capacity, ASP and net margin from various sources, you’ve calculated the net profit as
CY2021: RM 12,503 million
CY2022: RM 5,943 million
CY2023: RM 3,097 million
CY2024: RM RM2,319 million
CY2025: RM 1,572 million
(I) The total net profit for first five years = RM25,434 million

I believe you’ve estimated the terminal value from Year 6 onwards as follow:
(II) Terminal value
= Year 5 net profit / (cost of capital – perpetual growth rate)
= RM1,572 million/ (7% - 5%)
= RM78,578 million

(III) Current net cash = RM 1,210 million

Enterprise value = (I) + (II) + (III) = RM 25,434m + RM 78,578m + RM 1,210m = RM 105,222 million (note: slightly different from yours by half a percent)
Divided by the share base of 8,015.659 million, the value per share = RM13.10
(I ignore the dilution effect of HK listing, which could have lowered the value).

However, there are a few points I want to highlight. First, the above calculation has missed the step of converting calculated values in (I) and (II) to present value by dividing them with the chosen cost of capital at 7% per annum.

Adding back the step, net present value (PV) of the first five years are
CY2021: RM 12,503 million/ (1 + 0.07) = RM 11,685 million
CY2022: RM 5,943 million/ (1 + 0.07)^2 = RM 5,191 million
CY2023: RM 3,097 million/ (1 + 0.07)^3 = RM 2,528 million
CY2024: RM 2,319 million/ (1 + 0.07)^4 = RM 1,769 million
CY2025: RM 1,572 million/ (1 + 0.07)^5 = RM 1,121 million
(I) The PV of net profit for the first five years = RM22,294 million

(II) Terminal value
= Year 6 net profit / (cost of capital – perpetual growth rate)
= Year 5 net profit * (1 + growth rate) / (cost of capital – perpetual growth rate)
= RM1,572 million * (1 + 5%) / (7% - 5%)
= RM82,507 million

The PV of terminal value = RM82,507 million/ (1 + 0.07)^5 = RM58,826 million.

By enterprise value = (I) + (II) + (III) = RM22,294m + RM58,826m + RM1,210m = RM82,330 million.
Value per share = RM10.3

The second point is terminal value is very sensitive to the cost of capital and perpetual growth rate used. In the above calculation, more than 70% of the value comes from the terminal value, which is determined by RM1,572 million * 1.05 / 2%.

If the denominator (cost of capital – perpetual growth rate) is 3% instead of 2%, the enterprise value will be RM60,550 million, and the per share value is RM7.6

If the denominator is even higher at 4% (instead of 2%), the enterprise value will be RM49,551 million, and per share value RM6.2.

Moreover, the chosen terminal growth rate of 5% is too high. It's a weakness in DCF calculation that it assumes growth into infinity. Therefore as a rule of thumb, the growth rate cannot be larger than the overall economic growth rate. Otherwise, the company will grow into a size larger than the overall economy, which is absurd.

A more reasonable approach is to assume after Year 5 (CY2025), Top Glove will enjoy another 5 years of high growth at 10% a year, and after that a perpetual growth of 3% (which is considered high; usually analysts only give 3% if they want to “bump” up their TP!)

Using this approach, the PV for the next 10 years is RM28,386 million. Adding the PV of terminal value RM33,131 million and net cash RM1,210 million, enterprise value is RM62,727 million. The value per share is RM7.8.

Even this value is highly sensitive to various other assumptions. By changing the cost of capital assumption especially we could get a vastly different result.
01/03/2021 10:33 PM
Ben Tan Cnlim, observatory, thank you for your comments.

observatory, thank you for your detailed note. Comments like yours are one of the reasons why I keep writing here.

Just to confirm, the PVs of the cash flows for the next 5 years are discounted in my calculations. What I've apparently missed doing is discounting the terminal value, i.e. I've used RM82,506.93 as the terminal value instead of the discounted value.

I am likely not as familiar with the model as you, but I agree that projecting profits for a longer period of time before adding terminal value would give us a more accurate estimate. At the same time the further into the future we go the more not-based-on-present-evidence assumptions we need to make. The 5-year projection is relatively safe and it gives us a total PV of the profits + cash on hand = RM23.41 billion. Most assumptions thereafter will be our own input anyhow.
01/03/2021 11:21 PM
HrryPttr Thank you gentlemen, over here the discussion much much better
02/03/2021 12:26 AM
supersaiyan3 Ben, well written. observatory, great work.

As I said before, I would divide NPV calculations into three stages, i)supernormal profit level, ii) normal growth level after pandemic (10% maybe), iii) terminal value (5% maybe). Discount, then add back into NPV.

However, now the situation is a bit different from my previous projections. Vaccine's effectiveness surprises us all, what we are seeing is 10% vaccination of population enough to reduce confirmed cases by 80% (because the "multiplier" effect is reduced).

What big 4 needs to do NOW, is to scale back the expansion (which I think they will do so soon).
02/03/2021 1:06 AM
Jiang Ng Hey Ben and other contributors, thanks a lot for the good discussion here. Keep up the good work! It's so much civilized and productive here compared to the main forum!
02/03/2021 5:51 AM
i3gambler Good Info.
02/03/2021 8:45 AM
Ben Tan HrryPttr, supersaiyan3, Jiang Ng, i3gambler, thank you for your comments.

supersaiyan3, unfortunately the recently observed drop in cases was not the result of vaccination, but of very strict containment measures imposed around the world. Most countries have been under different forms of lockdown since before Christmas. The problem countries are facing right now is that more contagious variant spread has already been confirmed, so easing the measures right now will be dangerous. On other hand it will be devastating to the economies to keep the measures as they are. It is likely that we will see at least 1 or 2 more openings and closings of the countries, especially in Europe and in the US, by the time enough people are vaccinated.
02/03/2021 10:26 AM
paperplane Too many pessimistic, and too many weak people. Thts why they must get down losing first, then only steong holders win.
02/03/2021 12:54 PM
stockraider LOOKING AT THE FORECAST U WILL NOTICE TOPGLOVE PROFITABILITY IS TUMBLING EVERY YEAR IS TUMBLING EVERY YEAR 2021 TO 2025 DESPITE INCREASING CAPACITY FEW FOLD LOH!


Based on the aforementioned ASP projections, and based on average utilization rate of 86%, we get the following sales revenue projections for each calendar year (+ in RM, assuming USD1 = RM4):

CY2021 = $6.251 billion (RM25.007 billion)

CY2022 = $4.870 billion (RM19.480 billion)

CY2023 = $3,871 billion (RM15.484 billion)

CY2024 = $3.866 billion (RM15.462 billion)

CY2025 = $3.929 billion (RM15.715 billion)

TOTAL (5 years) = $22.788 billion (RM91.150 billion)

Note that these are calendar year projections and not financial year projections. The financial year for Top Glove starts in September, so one quarter of the financial year is always within the previous calendar year.


Enterprise Value

Based on financial analysts' projections, the net profit of Top Glove will be approximately 50% in 2021, 30% in 2022, and 20% in 2023. Let's assume it will go down to 15% in 2024, and 10% in 2025. In this case the net profit for each calendar year should be:

CY2021 = RM12.503 billion

CY2022 = RM5.844 billion

CY2023 = RM3.097 billion

CY2024 = RM2.319 billion

CY2025 = RM1.572 billion
02/03/2021 1:09 PM
Andre Kua This ASP graph is closer to real time than those numbers that Uncle Koon brought up. No matter how I calculate, I still cant get USD120 ASP that has been brought up many many weeks/months ago. The numbers dont lie... you can easily get capacity numbers and times ASP to get each glove makers revenue.
02/03/2021 1:49 PM
OrlandoOilSemiconT TG is building war crest

TG is building MOAT

Tis is d very 1st step towards Tan Sri's Fortune 500 ambition
02/03/2021 3:04 PM
OrlandoOilSemiconT Not everything has to b quantitative can b quantitative
02/03/2021 3:06 PM
OrlandoOilSemiconT * qualitative
02/03/2021 3:07 PM
OrlandoOilSemiconT Not everytime has to b quantitative can b qualitative
02/03/2021 3:09 PM
OrlandoOilSemiconT EPF is not innocent

Disposed a bit first to make d price drop thn later buy back a lot at cheaper prices

EPF doing price manipulation



3,866,400

Acquired

Direct InterestName of registered holderCitigroup Nominees (Tempatan) Sdn Bhd - Employees Provident Fund BoardAddress of registered holderCitigroup Nominees (Tempatan) Sdn Bhd Level 42, Menara Citibank 165, Jalan Ampang 50450, Kuala LumpurDescription of "Others" Type of Transaction225 Feb 2021

177,500

Disposed

Direct InterestName of registered holderCitigroup Nominees (Tempatan) Sdn Bhd - Employees Provident FD BD (TEMPLETON)Address of registered holderCitigroup Nominees (Tempatan) Sdn Bhd Level 42, Menara Citibank 165, Jalan Ampang 50450, Kuala LumpurDescription of "Others" Type of Transaction
02/03/2021 8:04 PM
godhand Based on the aforementioned ASP projections, and based on average utilization rate of 86%, we get the following sales revenue projections for each calendar year (+ in RM, assuming USD1 = RM4):

CY2021 = $6.251 billion (RM25.007 billion)

CY2022 = $4.870 billion (RM19.480 billion)

CY2023 = $3,871 billion (RM15.484 billion)

CY2024 = $3.866 billion (RM15.462 billion)

CY2025 = $3.929 billion (RM15.715 billion)
_____________________________________________________________


this figure after 2021 is wrong in many ways. only time will tell whos right.

my figure

65.4(100% absolute peak at 2021) 39.5 (60%) 25.9 (40%) 23.0 (35%) 21.5 (32%)

assuming rm25b is absolute peak. in 5 years, revenue drop like this 25b>15b>10b>8.7b>8b. Historically tg margin is around 7-9%. I assume its 9%. and i give it a fpe 25 okay? its very optimistic. 8b(0.09)(25) = 18billion market cap. at its current valuation i dare to say it will drop by another 50%.
03/03/2021 12:29 AM
godhand pls challenge my figure after 6 months
03/03/2021 12:30 AM
godhand Based on financial analysts' projections, the net profit of Top Glove will be approximately 50% in 2021, 30% in 2022, and 20% in 2023. Let's assume it will go down to 15% in 2024, and 10% in 2025. In this case the net profit for each calendar year should be:

CY2021 = RM12.503 billion

CY2022 = RM5.844 billion

CY2023 = RM3.097 billion

CY2024 = RM2.319 billion

CY2025 = RM1.572 billion

The company also has RM1.21 bill


__________________________

this is somewhat correct but the profit is still too high for 2025. u make a grave mistake. u know the company is declining but u chose to add all 5 years instead of the normalized year profit.
03/03/2021 12:36 AM
godhand little bro investing is about projection into the future. we already know the future asp is going to normalized why still bother take account into asp of unnormalized period.
03/03/2021 12:37 AM
untong lol.. still projecting profits >2bil after 2021? Seems like some people forget topglove annual profit was less than 500mil before pandemic.
03/03/2021 1:36 AM
Ikanbilis999 syok sendiri only
03/03/2021 3:15 AM
Anthem2 Why this obsession with wanting to look back at pre-pandemic levels? Nostalgic, is it? The pandemic is a world changing event, the magnitude of which it's multiple times that of "911"! After 911, billions were spent on airport security system upgrades and aircraft fortifications and it hasn't stopped. The pandemic has created an awareness never seen before and global healthcare strategic plans are being put in place, as we write. It's a different world out there, boys!
03/03/2021 1:19 PM
untong When i heard “this time is different”, it is time to walkaway.
04/03/2021 4:27 PM


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