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On Wednesday 9/12/12, Top Glove Corporation Bhd had released its Quarter 1 of Financial Year End 20201 (1QFY21) quarter report.
I only have one word after reading the report, which is Wow!
To keep things short, the Summary of the report is as follows:
Q1 2021 | Q1 2020 |
YOY
Increase |
Q4 2020 |
QOQ
Increase |
|
Revenue | 4759253000 | 1209100000 | 294% | 3109116000 | 53% |
Profit Before Tax | 3095525000 | 125452000 | 2367% | 1623554000 | 91% |
Profit After Tax | 2375775000 | 111426000 | 2032% | 1291995000 | 84% |
EPS (Sen) | 29.64 | 4.36 | 580% | 15.95 | 86% |
Operating Profit Margin | 65% | 12% | 53% | 52% | 13% |
Net Profit Margin | 50% | 9% | 41% | 42% | 8% |
Cash & cash equivalent | 3888422000 | 274531000 | 1316% | 2994933000 | 30% |
Top Glove’s Press Conference
After releasing its quarter result, Top Glove subsequently held a press conference and the following are the takeaways from the press conference:
From the press conference, we can tell that the Chairman and the Management of Top Glove are very confident in the future of the business. Based on the key points mentioned above, we can safely assume that at least for the next two quarters Top Glove’s quarter results will still be improving, no doubt in a big way!
My Opinion:
This quarter result has been fantastic and within expectation, it could be better if without the closure of its Covid-affected factories during the end of November. Whether this result meets the market’s expectation or not, it does not matter. I truly believe the best for Top Glove is yet to come.
Unfortunately, for the past few weeks Top Glove has been bombarded with numerous bad news like the CBP issue, Foreign Labor accommodation issue, multiple Vaccine approval news, and the glove over supply crap. Many believe the euphoria and trend for glove business are done. Hence its share price has been hammered down recently from the high of RM9.7 to around RM6.40 and since then the share price has been hovering around RM6.60 – RM7.20.
Amid all the bad news, the share price miraculously still standing strong above RM6.40, this means something isn’t it?
Fundamentally, the company business is still intact. In fact, the business is getting better based on the recent quarter results. Let me break it down a few points for you if you are still confuse:
Quarter | EPS (sen) |
Q4 2020 | 15.95 |
Q1 2021 | 29.64 |
*Estimate Q2 2021 | *29.64 |
*Estimate Q3 2021 | *29.64 |
Total | 104.87 or (RM1.05) |
Using the table above, assuming the upcoming next two quarters (Q2 2021 & Q3 2021) of Top Glove remain the same result, which means we are assuming there is no improvement in its Sales, Profits, no increase in ASP or whatsoever with everything remains the same as current quarter (which we know at this point of time is very highly unlikely) its total trailing EPS will be RM1.05 (sum of above 4 quarters EPS).
Historically, Top Glove’s PE multiple has always been on an average of 20 to 25. Using a PE of 20, and multiplying by its estimated EPS of RM1.05, we get the price of RM21, which translates to a potential gain of around 200% if you buy them at RM7.00!
Well, you could argue that the above calculations are too optimistic. Top Glove’s future PE multiple should be lesser since Glove might not be in demand anymore at post-pandemic. Fine, lets trim down the numbers further. By assuming Top Glove’s business is not as good as we expected and we discount its earning by 30%, this gives us a smaller EPS of RM0.735
As of 10/12/20, the closing price of Top Glove is RM6.99. For the easy of reading, I shall use RM7.00 instead.
Let me illustrate using a table:
*PE Ratio= Price / EPS. To get the valuation Price, simply use the PE multiply by its EPS (PE x EPS = Price)
EPS | PE multiple | Price* | Potential Gain |
RM0.735 | 25 | RM18.38 | 163% |
RM0.735 | 20 | RM14.70 | 110% |
RM0.735 | 15 | RM11.03 | 57.6% |
RM0.735 | 10 | RM7.35 | 5.0% |
By using a discounted EPS of RM0.735, a PE multiple of 10 gives Top Glove the price of RM7.35, still above the purchase price of RM7.00. To me, any price below RM7.00 is considered a safe zone with minimal downside risk.
For a consistently growing company like Top Glove, I have not seen its PE multiple to go less than 10 before. and REMEMBER, this calculation is based on the assumptions the next two quarter results are not improving, and we further discount its EPS by 30%. If I were to use another scenario with growing EPS for the coming quarters, Top Glove will be even more undervalue right now.
Conclusions:
Personally, I believe there is still great amount of upside potential for Top Glove in terms of its business. The market sentiment towards glove companies might not be bullish right now as people are worry that the approval of Vaccine will affect the demand and hence reduce the ASP of gloves. And many are just waiting on the sideline to monitor the progress of Vaccine and its actual impact on the glove business. If you are a long term value investor, there is really nothing to worry about.
Top Glove has declared an interim dividend of RM0.165 per share. Chairman, Tan Sri Lim has promised that the company will be giving dividend on a quarterly basis with a payout ratio of at least 50%, this will translate to a dividend yield of at least 9% p.a. based on the share price of RM7. Think about this, even if the share price of Top Glove stays around RM7 for a long time, you will still be enjoying a dividend yield of at least 9% p.a. , which is way more than any other investments. I believe sooner or later, big funds will eventually have their fund back into Top Glove as they usually have their own set of investing mandates which involve investing in high dividend yield stock or high growth stock.
Anyhow, before you make any decisions to buy, sell, or hold just ask yourself these few questions:
If 3 out of 5 of your answers are yes, perhaps you can consider to invest other stock instead. For your information, Top Glove makes the highest quarterly profit among Malaysia’s top 10 companies during this quarter. Company of such caliber like Top Glove does not come easy.
I foresee another exponential growth for Top Glove in the next quarter.
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DISCLAIMER
This post is completely for education and discussion purpose only. The author of this post does not have the required licenses to provide any investment advice or induce any trade for the readers here. Therefore, it should not to be taken as investment advice or inducement to trade and the Author take no responsibility for any gains or losses as a result of reading the contents herein. Please invest at your own risk.
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Chart | Stock Name | Last | Change | Volume |
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Created by BuyCall | Feb 01, 2021
Created by BuyCall | Jan 26, 2021
Jack Khan
How many times need to repeat? This is the same as during February 2020 their QR profit very low but share price always go up! That time ppl like you condemn the price to high.
Now QR strong share price low also you want to condemn price too low?
2020-12-16 14:15