Investment Highlights

• We maintain HOLD on Top Glove with a higher fair value (FV) of RM5.24 (vs. RM4.75/share previously). Our FV is based on an unchanged PER of 20x on CY22F FD EPS, incorporating an ESG-adjusted discount of 3% for our rating of two stars (Exhibit 5).

• Our FV upgrade is to reflect the effects of an expected lower share base as Top Glove reduces the size of the share issuance for its HKEX listing. There are no changes to our earnings forecasts.

• Top Glove has proposed to issue 793.5mil new shares (vs. 1,495mil shares originally) to raise up to HK$7.94bil (RM4.2bil). The proposal includes an additional 103.5mil new shares, which may be issued under the overallotment option, if exercised in full.

• The new shares represent approximately 9.91% of the total issued shares. The issue price has not been determined yet.

• The size of the issuance of new shares makes up only 53% of Top Glove’s originally planned listing volume of 1,495mil shares. For a full comparison of both proposals, see Exhibit 1.

• The usage of the listing proceeds is identical in terms of percentage allocation. The only difference is that the revised proposal would generate lower proceeds as the number of new shares issued is smaller (Exhibit 2).

• We believe that Top Glove’s ASP has peaked in 2QFY21. In contrast, its peers are likely to experience ASP growth in the coming quarter as they have increased their ASP at a much slower pace. Despite a resurgence in global cases in recent times, we doubt that the renewed glove urgency would push Top Glove’s ASP back to peak levels.

Source: AmInvest Research - 23 Apr 2021