Investment Highlights

• We raise our FY19–21F forecasts by 3.3%, 3.0% and 2.7% respectively to reflect interest savings from the issuance of US$200mil exchangeable bonds. However, we tweak our FV lower to RM6.34 (from RM6.35) after factoring in a fully-diluted share base of 2,689.4mil (+5.1% vs. the current outstanding shares). Our FV is based on DCF (WACC 6.4%; terminal growth 2.5%). At RM6.34, the implied CY19F P/E is 17.4x.

• Top Glove has issued US$200mil guaranteed exchangeable bonds with the following key terms: 1. 2% p.a. coupon rate and fixed exchange rate of RM4.0703 per USD; 2. An exercise price of RM6.2040, which is at a 20% premium to the reference price of RM5.17 as at 20 February 2019; and 3. A tenure of five years (maturity date: 1 March 2024)

• The proceeds will be utilised to pare down part of its USD syndicated term loan and other higher interest loans. We anticipate a RM15.4mil savings.

• Assuming a full conversion of the exchangeable bonds, the additional 131.2mil new shares (equivalent to 5.1% of current outstanding shares) would dilute FY20F EPS by 2.6%, which is insignificant.

• We are neutral on Top Glove’s latest corporate exercise. While the exercise will result in interest savings, it is offset by a mild EPS dilution assuming the exchangeable bond would eventually be converted into new shares.

• We continue to like Top Glove for: (1) its strong growth prospects driven by both organic growth and M&As; (2) its continued efforts in improving quality ad operational efficiency; and (3) its dominant market position as the largest rubber glove manufacturer in the world.

Source: AmInvest Research - 22 Feb 2019