I recently wrote a back-of-the-envelope blog post (you can read it here) about one potential way of gauging the mid-term (current financial year) fair market value of Top Glove. My main purpose with that blog post was in no way to suggest a specific target price, but I was rather interested in comparing the valuations of the two giants in the industry - Top Glove and Hartalega, and to demonstrate that either the market is overvaluing one of them, or (more likely) undervaluing the other one.

 

In the discussion that arose as a result of that blog post, people expressed doubt about the prospect of Top Glove keeping the profits they announced for their first quarter of the current financial year consistent (my assumption in doing the calculations in that blog post), let alone increasing them over the next few quarters. That concern is certainly valid and it is likely one of the main reasons for the current valuation of the company. To get a better idea of what factors might play a part in how the company's profits will move over the next few quarters, let's do a simple SWOT analysis. Each of the factors mentioned below merits a much more detailed review, and I will endeavor to write in more detail about each of them over the next few weeks. For now, let's just list them down. If you can think of any additional factors that should be given a serious consideration, please let me know.

 

 

 

Strengths

 

- Total market share

 

- Robust financial position (low debt levels and a huge cash pile)

 

- Extraordinary net profits over the short- to mid-term

 

- High historical long-term ROE

 

 

 

Weaknesses

 

- Undiversified business model

 

- Bad international reputation regarding ESG-related matters

 

 

 

Opportunities

 

- Further than expected end of the COVID crisis worldwide

 

- Long-term product demand growth

 

- Lifting of US imports ban

 

- Increased market share in higher profit margin segments

 

- Increased market share in higher profit margin markets

 

- Improvements in ESG-related image

 

- Acquisition of subcontractors and suppliers

 

- Increased R&D and automatization expenditure in absolute ringgit terms

 

- Higher utilization rate after factories reopening

 

- Share buyback

 

 

 

Threats

 

- Nearer than expected end of the COVID crisis worldwide

 

- Increase in raw material price

 

- Increased competition

 

- Another round of closures of factories

 

- New tax implemention

 

- Government fine

 

- US ban prolonged further

 

- Ongoing ESG-related issues

 

- Market price suppression related to derivative financial products

 

 

 

Important disclaimer: Any views expressed are for informational and discussion purposes only. None of this information is intended as, and must not be understood as, a source of advice. It is imperative that you always do your own research and that you make any decisions based on your personal situation and your own personal understanding.