Investment Highlights

• We maintain our HOLD call on Top Glove Corporation (Top Glove) with a lower fair value of RM1.90 (from RM1.95). Our valuation methodology is unchanged, using PER of 18x on CY23F EPS. There is no ESG-related FV adjustment based on our 3-star rating.

• According to Reuters, Top Glove has postponed its plan to raise US$347 million in a Hong Kong listing due to elevated market uncertainty following Russia's invasion of Ukraine.

• Top Glove managing director Datuk Lee Kim Meow was quoted as saying: “Due to the changing developments in the industry and the current equity market conditions, we have decided to give ourselves more time to pursue this exercise in Hong Kong,” referring to the impact of “Russian military action” on market sentiment.

• Lee also said that the company was in no hurry to list as the plan was for the long-term benefit.

• We believe that the news is short-term negative on the stock. However, the long-term impact is positive as it removes the uncertainty surrounding the IPO which would have diluted its long-term EPS by around 10%. We have reduced our share base assumption due to the Hong Kong IPO postponement.

• We have cut our FY22/23/34 earnings estimates by 19%/12%/8% to RM532mil/RM786mil/RM968mil after assuming higher raw material cost. The spike in crude oil prices would push up nitrile butadiene’s cost. Nitrile butadiene is the raw material used to make nitrile gloves. Due to the stiff competition in the gloves industry, we believe that Top Glove may not be able to completely pass on the cost increase to customers.

• Top Glove is expected to release its 2QFY22 earnings later today. Due to the ongoing trend of lower ASP for gloves, we expect 2QFY22 earnings to be weaker QoQ. However, its balance sheet should remain strong with a net cash position.

Source: AmInvest Research - 9 Mar 2022