Investment Highlights

• We maintain HOLD on Top Glove with a lower fair value (FV) of RM2.60 (vs. RM3.10/share previously). Our valuation methodology is unchanged, using PER of 18x on CY23F EPS. There is no ESG-related FV adjustment based on our 3-star ESG rating.

• Top Glove has resubmitted its listing application form to the Hong Kong Exchange (HKEX) on 28 October 2021. The company has lowered the planned proceeds to be raised from the issuance of news shares from the IPO. The number of shares to be offered remains the same at 793.5mil.

• The maximum amount to be raised will be up to HK$4.24 billion (or RM2.27 billion). The final amount to be raised will depend on the market price of Top Glove shares and the outcome of the book-building process.

• We are neutral on the news as we have factored in the additional 793.5mil shares to be listed into our future EPS estimates. The concern on the IPO previously was on the dilution of EPS from additional shares and not so much on the amount to be raised.

• Separately, we have reduced our FY22/FY23 earnings estimates by 11%/17% to RM1.65biln/RM1.14bil. The lower earnings estimates are due to a reduction in gloves ASP assumptions. Our key assumptions for blended gloves ASP for FY22/FY23 are US$25.4/US$23.0 (previously: US$26.2/US$23.9). We arrive at the lower blended ASP assumptions after taking into account the stiff competition from Supermax in non-US markets.

• Recall that the US Customs and Border Protection has banned Supermax products on 21 October. As a result, we believe that Supermax is likely to channel its gloves originally produced for the US market to non-US markets. This should result in stiffer competition for Top Glove rather than Hartalega and Kossan in non-US markets.

• Maintain HOLD with a lower FV of RM2.60. The lower FV is due to lower earnings forecast for FY22 and FY23. Our FV is based on PE target of 18x to CY23 EPS. Note that Top Glove’s forward PE average was 18x before the pandemic.

Source: AmInvest Research - 29 Oct 2021