• Top Glove (TOPG) is proposing a bonus share issue of up to 5,476.97m new shares on the basis of 2 shares for every 1 existing held at an entitlement date to be determined later.

• The exercise sees an adjustment in Top Glove’s FY21F EPS to 44.7sen and ex-bonus adjusted TP of RM10.30 (from current TP of RM31.30).

• Top Glove’s prospect remains positive backed by continued strong demand and higher ASPs on increasing global Covid-19 infections.

• Maintain BUY with TP of RM31.30 based on 23x PER pegged on FY21 EPS.

Proposed 2 for 1 bonus issue.

TOPG has proposed a bonus issue of up to 5,476.97m new shares on the basis of two bonus shares for every one existing TOPG’s share held at an entitlement date to be determined later. As at 6 July 2020, the company’s issued share capital was RM1589.7m comprising 2,694.7m shares (including 661,600 treasury shares) and will result in minimum enlarged number of shares to 8084.1m upon completion of bonus issue.

In addition, the company also has 23.5m outstanding options granted under the employees’ share scheme (ESOS) and USD30.3m (RM123.5m) 5-years Guaranted Exchangeable Bonds convertible into 20.2m new TOPG shares. Assuming all the outstanding ESOS options and Exchangeable Bonds share are exercised prior to the implementation of the proposed bonus issue, 5,476.97m bonus shares will be issued. This will result in maximum enlarged number of shares to 8,215.5m (table 1). The proposed bonus issue is expected to be completed by the end of 3Q2020.

Bonus to improve liquidity of shares

We view this move as positive. The exercise serves as a reward for TOPG existing shareholders as well as improve the shares trading liquidity. Upon completion of bonus issue of up to 5,476.97m (taking maximum scenario), there will be a dilution in the group’s FY21F EPS from 136sen to 44.7sen. The theoretical price of ex-bonus (based on our TP of RM31.30) will be RM10.30.

Outlook remains strong

Our bullish outlook on TOPG remains, given strong demand visibility to continue into 2021. This is supported by increasing number of infections including resurgent cases which had surpassed 14.6m people globally. With regards to the US Customs detention order, TOPG is in discussion with the US authorities and is confident that it can be resolved very shortly (within 1 months)

Maintain BUY with TP RM31.30

Maintain BUY with TP of RM31.30 (ex-bonus adjusted priced of RM10.30). Our valuation is based on 23x PER pegged on astronomical growth of 163% yoy in FY21 EPS to 136 sen. We like Top Glove due to i) ability to supply in current tight market conditions with greater excess capacity compared to its peers, ii) higher ASP increase among OEM players as they are a major supplier with a diversified customer base, and iii) experienced management.

Source: BIMB Securities Research - 20 Jul 2020