CAN an academician fare better than research houses in predicting the prospects of Top Glove Corp Bhd which had at one stage came so close to toppling Maybank as the largest listed entity on Bursa Malaysia?

While majority of stock market analysts have in recent times reiterated their bearish outlook on the glove sector, a senior lecturer from Universiti Teknologi MARA (UiTM) has begged to differ by coming forward to endorse Top Glove Corp Bhd.

Wan Mohd Farid Wan Zakaria who is attached to the Faculty of Management & Business has given thumbs up to the world’s largest glove make as being grossly undervalued based on last Friday’s (Aug 26) closing price of 83 sen which is a 10-year low despite being fundamentally strong.

“On May 20, 2022, the Employees’ Provident Fund (EPF) has reduced its equity holding in Top Glove to below 5% which is seen by analysts as one of the factors in the rubber glove maker’s shares falling to 83 sen/share last Friday,” observed Mohd Farid.

“In the absence of EPF’s main institutional investors, Top Glove’s shares have apparently fallen into the ‘undervalued’ category.”

Citing stock research portal GuruFocus which is of the view that Top Glove’s shares appear to be “very undervalued”, Mohd Farid noted that such assessment was made based on the historical multiple that the stock has traded at, past business growth and analysts’ estimates of future business performance.

“At its current price of 83 sen and market cap to RM6.81 bil, Top Glove shares are believed to be significantly undervalued,” insisted Mohd Farid. “Because Top Glove is undervalued, the long-term return on its stock is likely to be much higher than its business growth which has averaged 25.9% over the past five years.”

Last Friday (Aug 26), Top Glove was down 1 sen or 1.19% to 83 sen with 41.48 million shares traded – a far cry from its pre-COVID share price of RM4.75 on Dec 30, 2019.

“However, Top Glove rolled out an ex-bonus issue on Sept 3, 2020 based on two bonus shares for one existing common share,” recalled Mohd Farid.

“So, after making adjustments for bonus shares, the share price on Dec 30, 2019 should be RM1.583 which is almost double the current share price of 83 sen. This shows that the current stock price is oversold.”

The very fact that Top Glove did not launch any mega expansion projects in FY2020 when glove prices were high would somehow enable the Big-Four glove maker to avoid unnecessary capex expenditure while keeping costs to a minimum during the current difficult times, according to Mohd Farid.

“Many smaller second and third tier glove companies are not expected to survive this downward trend in the glove industry,” he opined. “However, being the world’s best player in the industry, Top glove is expected to benefit the most after smaller glove companies exit the glove industry.”

Elsewhere, Mohd Farid also expects the recent ringgit weakness by around 10% in the past 12 months to have benefited Top Glove because all its products are exported in US dollars.

“Top Glove Bhd has been profitable for 10 years. Over the past 12 months, the company earned a revenue of RM3.6 bil and earnings of 79.2 sen/share. Its operating margin of 58.18% ranks better than 99% of companies in the medical devices & instruments industry,” he pointed out.

“Overall, Top Glove’s profitability is ranked eight out of 10, indicating robust profitability. The company’s financial position is also strong with its growth position being better than 91% of companies in the medical devices & instruments industry.” – Aug 28, 2022