Investment Highlights

• We maintain our HOLD recommendation for Top Glove with a lower fair value (FV) of RM5.63 (from RM6.50). Our FV downgrade is to reflect the earnings dilution as a result of the issuance of up to 1,495mil new shares. Our FY21–23F FD EPS forecasts will be reduced by 14.7%, 13.2% and 12.7% respectively.

• Top Glove proposed to undertake an issuance of up to 1,495mil new shares representing approximately 18.65% of the total issued shares to raise up to HK$14.95bil (RM7.77bil) at an issue price to be determined at a later date. The proposal includes an additional 195mil new shares which may be issued under the over-allotment option, if exercised in full. Our early estimation suggests an offer price of around RM5.20 per share based on proceeds of RM7.77bil over 1,495mil shares.

• The new shares will be offered to Hong Kong retail investors pursuant to the Hong Kong public offering, and institutional investors pursuant to the international offering. As part of the proposed issuance of the new shares, an application for the listing of, and permission to deal in the existing and the new Top Glove shares will be made to the Main Board of The Stock Exchange of Hong Kong Limited (HKEX).

• The net proceeds from the proposed issuance of new shares will be mainly used for the expansion of production capacity and developing a data-driven manufacturing system (Exhibit 1).

• The proposed dual primary listing will create an additional platform in which the Top Glove Shares can be traded via another established stock exchange and allow direct participation by new private and institutional investors in Hong Kong and North Asia, including Chinese funds and wealth management investors.

• While the proceeds will be used to expand Top Glove production capacity with the impact on earnings only be felt beyond 2024, the issuance of 1,495mil new shares will result in earnings dilution and reduce our FY21–23F FD EPS forecasts by 14.7%, 13.2% and 12.7% respectively. Hence, we lower our fair value from RM6.50 to RM5.63 based on CY22 FD EPS over an unchanged PER of 23x. As there is a little potential upside, we maintain our HOLD recommendation on Top Glove.

Source: AmInvest Research - 1 Mar 2021