Erudite Thoughts
IS TAN SRI DR LIM WEE CHAI STUPID TO BUY BACK TOP GLOVE SHARES?
Top Glove has spent RM1.28 billion on share buybacks since September 2020 and now its chairman Tan Sri Lim Wee Chai has picked up the baton by buying 4.28 million shares for RM29.77 million in his own capacity. With each purchase, the price of Top Glove shares keeps dropping. Is Tan Sri Lim and his management stupid? Does the biggest glove maker in the world not know what’s happening in the glove market? Are they not aware of what the high priests of doom and the predatory IB’s have been braying about vaccines and the impending over-supply of gloves?
To answer the header question, let us first explore a few questions about the vaccine and the pandemic. Unlike the seat-of-the-pants piece put out by JP Morgan, what you are about to read below is not based on the writer’s opinion but on those of knowledgeable experts.
Covid cases are rising exponentially and despite the introduction of vaccines, Bill Gates in a CNN interview last week said that the next 4 to 6 months could see the worst of the epidermic.
We know that to stop the virus, we need to achieve herd immunity. According to Lancet, the world’s most prestigious medical journal, widescale deployment of vaccines is not expected till end of 2021. If distribution is efficient and proceeds smoothly it will take till 2024 for vaccination to achieve a high enough coverage (above 80%) to achieve herd immunity (go to: https://www.thelancet.com/article/S0140-6736(20)32318-7/fulltext ).
At this time even the vaccine manufacturers do not know:
- how efficacious are the vaccines? How will efficacy be affected by the evolution and mutation of the virus?
- how long will vaccine protection last? Data on immunity to other corona virus suggest that immunity may be short-lived in duration i.e. less than 6 months
- how fast and how extensive can vaccine distribution be carried out and
- what will be the level of resistance to the acceptance of vaccine?
Therefore, can herd immunity be achieved?
- Duration of immunity and efficacy are important in determining herd immunity
- The formula for calculating herd immunity is: P = (1-1÷R₀)÷E,
where:
P= the level of herd immunity as a proportion of the population
R₀ = Reproduction No. (the expected no. of secondary cases produced by a single infection}
E = Efficacy of vaccine
- If R₀ is 2.5 to 3.5 (as presently detected) and the vaccine is 94% efficacious, the level of herd immunity as a proportion of the population is 64% to 76%. If efficacy is 86% (Chinese vaccine), the level of herd immunity required is 70% to 83% of population. The lower the efficacy, the higher will be the level of herd immunity required.
- The efficacy numbers are based on Phase 3 trials, each involving up to 3000 participants. Now that some vaccines have received regulatory approval, it will go into mass distribution (Phase 4). Whether it will stay safe and what adverse events may occur down the road, we do not yet know.
- If side effects surface with wider use, the level of resistance to or non-acceptance of vaccine could be high. With 20% non-acceptance and 86% efficacy, herd immunity may never be achieved
- Even now pregnant women, young children and people with allergies are discouraged from taking the Pfizer mRNA vaccine.
- If countries do not reach high vaccine coverage levels, Covid-19 will become endemic but at a low level, the precise level depending on the degree of vaccine uptake, with peaks in winter and troughs in summer in the northern hemisphere.
- Taking into consideration all the above factors: hesitancy in accepting vaccine, unknown efficacy and side effects, limited protection duration and the insufficient distribution coverage, the pandemic may abate with the introduction of vaccine but the covid-19 endemic will persist in many parts of the world.
- As long as the virus persist, the world has to be vigilant against infection from human-to-human contact and formite transmission (transmission of virus via inanimate objects and surfaces), against which gloves are meant to prevent.
Top Glove’s Capacity Expansion & Forecast of Global Demand Growth
- Top Glove, the largest manufacturer in the world has forecast that demand for gloves will grow by 25% in CY2021, and post covid, demand will grow by 15% (compared to 13.8% p.a. pre-covid).
- It has planned its production capacity expansion to maintain its 26% market share.
|
Year |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
|
World Demand Growth |
25% |
15% |
15% |
15% |
15% |
|
|
World Glove Production (Billion) |
350 |
437.5 |
503.1 |
578.6 |
665.4 |
765.2 |
|
TG's Production Capacity (Billion) |
90 |
108 |
129 |
|||
|
TG's capacity increase (%) |
20% |
19% |
||||
|
TG's Market Share (Projected) |
26% |
25% |
26% |
Will the Global Glove Capacity Expansion lead to oversupply?
- The growth in global demand in CY2020 is estimated to be 20%. Is the forecast of 25% increase in global demand in 2021 an over-estimation and will the concomitant increase in production lead to oversupply? The answer is NO!!
- As the number of active covid cases now is greater than in early 2020, the nature of exponential growth of infection means that, with a larger infection base, the number of infections will be greater in 2021 than in 2020. Therefore the percentage growth in demand in 2021 will surely exceed the 20% growth in 2020 and may even exceed the forecast 25% increase. If this happens, the planned increase in global production will not lead to oversupply.
- The initial roll out of vaccines will inevitably be slow and will not match the exponential rate of infection. Right now, only the Pfizer vaccine has been approved by FDA. The -70°C storage requirement will obviously limit its widespread distribution in tropical and poorer countries.
- To end the pandemic, the virus must either be eliminated worldwide, which most scientists agree is near-impossible because of how widespread it has become. And achieving the required 80% herd immunity will not be easy
- If immunity to the virus lasts less than a year, for example, similar to other human coronaviruses in circulation, there could be annual surges in COVID-19 infections through to 2025 and beyond
- In time, as with all products, supply will catch up with demand and an equilibrium price, higher than historical, will then prevail. However, with the necessity to restock, and the time needed for new entrants to obtain FDA and EN certifications, over-supply will not happen till 2022, and possibly beyond if Covid-19 is still not contained by then.
- In the last 20 years, there have been six significant threats - SARS, MERS, Ebola, avian influenza and swine flu. We dodged five bullets but the sixth – Covid 19 -got us. And this, according to many experts, will not be the last pandemic we are going to face.
TOP GLOVE’s PROSPECTS
So Tan Sri Lim and Top Glove must have had good advice on the pandemic situation and know that the gravy train is not ending yet.
Following Top Glove’s announcement of Q1FY21 results, which saw record profits of RM2.4 billion (higher than Maybank and Public Bank), I decided to crunch some numbers based on TG’s guidance of 30% increase in ASP for the next quarter and 25% growth in glove demand for CY2021.
|
Year |
FY2020 |
|
|
TG Sales (RM Billion) |
7.237 |
25.981 |
|
PAT (RM Billion) |
1.789 |
14.792 |
|
No. of Shares |
8.197 |
8.197 |
|
EPS |
0.22 |
1.80 |
|
Mkt Price |
6.41 |
27.07 |
|
PE |
29.37 |
15 |
The projected figures for FY2021 astound me!
- PAT of RM15 billion could be achieved making TG the most profitable company in Malaysia ever!
- At a PE of a mere 15x, TG’s share could be worth RM27 compared to the price today of RM6.41 and the JP Morgan’s ridiculous fair value price of RM3.50. In a bull market at 25x PE, the price could reach RM45!
So Tan Sri Lim is not a fool after all. Knowing what is coming, buying back TG shares at below RM8 is a no-brainer, a “pauchiak”, slam dunk decision!
For all Top Glove investors, stay healthy and enjoy the big ang pow that could come in a couple of months.
Disclaimer : This article is purely for the purpose of information and opinion sharing. You should not make your investment decision based on it and you are strongly recommended to seek independent verification and advice.
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Discussions
4 people like this. Showing 42 of 42 comments
pls look beyond year 2021...what happen when covid pandemic is over, will the glove demand remain? Will you invest into a business that will going to make less money after 2 years ? So why buy now at current price and not when it is cheaper.
2020-12-16 04:27
Philip ( buy what you understand)
Let's put it into perspective,
at 6.41, the market cap is 52.45 billion.
At 45, this will mean we are looking at a company worth a whopping 350 billion ringgit.
Look at it this way, the entire BURSA Malaysia market cap is 1.6 trillion,
Meaning tg will become the single biggest component of the entire BURSA with a 21% weight age of the entire Malaysian stock market.
Firstly, how long have you been Investing, 6 months?
Do you know how much bullish money is required to push up the stocks to these crazy levels? If you look at the index, if the goes up, other stocks like supermax, harta and comfort kossan will also go up in tandem. If using your same analogy, companies like AT, mahsing,esceram, and all the new companies going into gloves will also receive a boost.
Are you really saying that the glove industry can be worth 50% of market valuation in bursa Malaysia?
That TG is worth more than ALL the banks in Malaysia COMBINED?
That hartalega can buy ALL the telco companies in Malaysia?
Come on. Let's talk rationality. Even if you decide that covid will last for the next 5 years, and get 14 billion every year until 2026,
That would only put a 2 billion asset company like TG into the 70 billion net asset, after which in 2026 covid no more and sales of gloves will crash as EVERYONE will be going into gloves.
Why not if you are estimating 60% NET PROFITS continuously.
Why invest in Google, apple, Amazon, banks etc if TG is such a moneymaker?
>>>>>>>>
In a bull market at 25x PE, the price could reach RM45!
2020-12-16 04:54
Gloves demand will growing beyond 2020. But ASP will sharply drop and back to normal price soon. Thus, profit margin 40% and above a bit hard.eps might below 10cents then
2020-12-16 06:18
Phillip, what did you do with your lorry loads of TG?.
Must have made huge profits from them!
2020-12-16 06:54
Oops! Phillip sold before the amazing glove bonanza began.............got it wrong huh!
2020-12-16 07:04
Insiders have access to a lot more statistics, abit arrogant to doubt the basis of their confidence......lol
2020-12-16 07:08
Philip is right.
I attend CSCTEEL AGM and ask the Board what is the company policy on SBB. The Board reply company can only do SBB if the shares price fall below the NTA because in this way the SBB increase the NTA per share.
SBB above NTA is consider as price support for someone benefit and is not in the interest of the company.
2020-12-16 07:17
If Tan Sri Lim Wee Chai is so smart, why he didn't mop up topglove when it was at Rm1.50 (Rm4.50 before spliting) on March, 2020?
Why Lim So chai let others institution investors to sapu at Rm1.50 (Rm4.50 before spliting) and stupidly buy from them at Rm6.50 (after split)?
2020-12-16 07:21
Here's my take:
Lim so chai didn't buy on March 2020 - because he is not a growth stock investor
Lim so chai buys on November 2020 - because he is a value investor.
History has shown value investors cannot make money. You want to follow him kah?
2020-12-16 07:27
Lim has made more from TG than anybody else............should hv followed him for past 15 years, would hv made plenty....
2020-12-16 07:37
No need to be so smart, just have better quality info will make big difference.......
2020-12-16 07:39
@Sslee Philip is right.
I attend CSCTEEL AGM and ask the Board what is the company policy on SBB. The Board reply company can only do SBB if the shares price fall below the NTA because in this way the SBB increase the NTA per share.
SBB above NTA is consider as price support for someone benefit and is not in the interest of the company.
>>>>>>>>>>>>
Aiyo Sslee, how to expect good answer from CSCTEEL?
Have they collected deposits for sales delivery nearly 2 years later, not to mention at ultra Super High margins.........thats why market is confused...... no one realy knows how glove demand will shape up in 2023.......
important thing to consider is who has the best info to make the most accurte estimates...... ???
U decide...... of course can also sit it out and watch.......... or mayb buy puts....up to u....
2020-12-16 08:08
best is to take private and shift listing to hkex or maybe Indonesia. all the big firms now eyeing Indonesia. Tesla la...google la...amazon la....all by passing bolehland...better run for your money
2020-12-16 08:15
At a PE of a mere 15x, TG’s share could be worth RM27 compared to the price today of RM6.41 and the JP Morgan’s ridiculous fair value price of RM3.50. In a bull market at 25x PE, the price could reach RM45!
2020-12-16 08:17
Tan Sri hope to be the top 3 at Malaysia Forbes billionaire ranking for 2020. Now all gone to the drain...
2020-12-16 08:24
'US needs more resources to prepare for next possible outbreak, Fauci says
From CNN's Lauren Mascarenhas
Dr. Anthony Fauci said the US needs more resources to deal with the next possible outbreak.
“We do need more resources now, given the lessons learned about how to better prepare for the next outbreak,” he said Tuesday in an interview with Vox’s Sean Rameswaram.'
The quality af information one absorbs is the decider.......
From January to March, a lot of infomation, even accisations of over-reacting to risk,those who ignored info regarding impending glove shortage, ignoring the insiders who were warning nearly daily, even ignoring WHO warning. All these miss the boat!!!
If absorbed right info, who have been crystal clear, as it was with me........
2020-12-16 08:33
US needs more resources to prepare for next possible outbreak, Fauci says
From CNN's Lauren Mascarenhas
Dr. Anthony Fauci said the US needs more resources to deal with the next possible outbreak.
“We do need more resources now, given the lessons learned about how to better prepare for the next outbreak,” he said Tuesday in an interview with Vox’s Sean Rameswaram.'
The quality af information one absorbs is the decider.......
From January to March, a lot of infomation, even accisations of over-reacting to risk,those who ignored info regarding impending glove shortage, ignoring the insiders who were warning nearly daily, even ignoring WHO warning. All these miss the boat!!!
If absorbed right info, would have been crystal clear, as it was with me........clear mind is needed.... If conclusion differs from insiders, mayb were missing something.....more likely huh!
2020-12-16 08:37
yup.....they are buying into glove counter (at a bargain price only)
2020-12-16 08:37
Dear all,
Directors’ primary responsibility is to make sure the Company runs well and create value for shareholders.
IS TAN SRI DR LIM WEE CHAI abuse his power to satisfy his ego at the expense of the company by spending billion on SBB that did not benefit the company?
He should use his own money to buy Topglov shares from open market if he feel Topglov is undervalue and please spare the company billion that can be use for more productive usage.
2020-12-16 08:53
kl_guy Let me look beyond 2021, wait har... i take out my crystal ball
Ohh.... 2021 many ppl took the vaccine injection, this greatly reduce the mortality rate, and since ppl not many died liao, government also dint give a shit about COVID. ehy some loss effectiveness after 6 months. Walao, have to inject again.
Lagi worse, many ppl unwilling to inject. Doesnt seem like ending at all. Let me see 2022.....
Ok, hospital still as crowded.
How you see 2021? Expect globally, everyone get vaccine shot at the same time on one go, everyone timed together, and successfully covid gone? fat hope...
2020-12-16 21:41
Those Billions are better off spending on venturing into new businesses. This whole SBB is stupid. If TG is really worth RM7 or RM8 or higher? Why use SBB to push up the price? Why not let it slide down and then mop it up at dirt cheap price?
2020-12-16 21:54
Very very stupid indeed. If smart, the so-chai should have bought back shares on March, 2020.
Now the sorchai bought back shares at inflated prices paving way for others to unlock profits at the expense of TG.
Posted by InsiderShark > Dec 16, 2020 9:54 PM | Report Abuse
Those Billions are better off spending on venturing into new businesses. This whole SBB is stupid. If TG is really worth RM7 or RM8 or higher? Why use SBB to push up the price? Why not let it slide down and then mop it up at dirt cheap price?
2020-12-16 21:58
Bcos he talk big during interview that topgl wil overtake maybank. In d end, tat din hapen. So he cant lose face n keep suport the px
2020-12-16 22:08
Responsibly finish obligations then buy......... still undervalued, why not..........of course not as sharp or as prepared as Stanley.......
2020-12-16 22:23
THE KEY TO VALUATION IS WHAT TYPE OF SUSTAINABLE EARNINGS IN 2022 & BEYOND LEH ??
THAT WILL DETERMINE GLOVES VALUATION LOH...!!
2020 & 2021 IS JUST PUMP & DUMP OPPORTUNITY FOR GLOVES LOH...!!
THEY FORGET SHARP INCREASE SUPPLY FROM THAILAND, INDONESIA, VIETNAM, CHINA, EUROPE & USA BESIDE MALAYSIA ARE ON THE OFFING IN THE NEXT 6 MONTHS LOH...!!
“Overall, management remains upbeat on its earnings prospects at least until the first half of 2021 with a possible softening in the second half of 2021.” MEANING THE PARTY MAYBE BE OVER IN ABOUT 6 MONTHS LOH.!
U WANT TO GET CAUGHT LATE & DO ALL THE CLEANING OR U WANT TO LEAVE EARLY LEH ?
Posted by ryoyagod > Dec 17, 2020 12:58 PM | Report Abuse
Current price actually is good time to collect . Probably I am , but I think Glove still have a small wave
2020-12-17 13:04
THE THREAT ARE MANY MANY MORE NEW GLOVES PLAYERS COMING, THEY MAYBE HAPPY TO CHARGE LOWER AT 25% PLUS NP JUST TO GET THE SALES LOH...!!
Posted by Sslee > Dec 17, 2020 1:06 PM | Report Abuse
Just a simple question if you charge your customers your products at about 10% NP margin for the past 10 years and now due to Covid you charge them with 60%+ NP margin what will they feel?
So are you going to increase your price to 80%+ NP margin?
And what should be the NP margin % post Covid?
And how many customers you are going to loss because of the 80%+ NP margin you charge them when they need your support?
And how many of your customers will buy from the new comers?
2020-12-17 13:11
Look here. Why only LWC is buying & not other Top 3 bosses? Is he only the smart one? Or only his company the most under value? Or only TopGlov holds too much of cash?
When you become one of the richest, own pride comes first before money & the company.
Pls spend the money wisely to improve the accommodation quality of the staff.
2020-12-17 21:44
Abang_Misai, start talking and address people as sochai when you're worth as much as 0.0001% of Tan Sri Dr. LWC. you're the only sozai here.
2020-12-17 22:56
Your focus stops at FY2021 which is until Aug2021 only. You'll think differently if you include FY2022 forecast as well.
2020-12-18 09:13
Tan Sri Lim must have his own reason for the share buy back. He is looking at 21/2022 numbers
2020-12-18 10:35
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