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sikusiku
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Posted by sikusiku > 2020-11-21 17:36 | Report Abuse
Something else to consider in your article here.
Top Glove has been aggressively buying back their shares, although aggressive is a somewhat arguable term - depending on which side of the fence you sit on. Their buyback is capped at RM70 million per day, although of course as outside investors, we do not know what the upper limit for the buyback price is set at before buybacks discontinue.
Now whilst our beloved Uncle Koon has of course condemned the buybacks as being counterproductive (since he views it as management trying to support the share price), whilst at the same time throwing in a plug praising his flavour of this time, Supermax - heh, I think there's one other view one should look at.
TG will be issuing a dividend of 50% of their net profit for the quarter. That's their stated policy.
What some investors may not realise is that the their cash flow is far more robust than net profit simply because of the advance payment (deposits/prepayments) paid by buyers, way in advance of delivery. As I understand it, spot order deposits are at around the 50% range, whilst longer term orders (extending up to the 650-660 day backlog) have a deposit of around the 20% range.
Deposits are not counted as profit. Profit is only recognised upon delivery of the goods. Thereafter deposits will then be categorised as revenue, along with any balance of payment.
It is possible for TG to declare the bulk of the prepayments as dividends. They can do so and recognise it as a special dividend issue.
Alternatively though, there is share buybacks. Consider this, there is still another 12 days of trading before the expected release of 1QFY21 results by Top Glove (tentatively set at 9 December).
If you do the math and assuming that TG continues to buyback RM70m worth of shares, up to the end of day of 8 December, and assuming the share price is bought back even at an assumed higher average price of RM8 per share, the amount of treasury shares would then exceed 2.5% of the company's total number of shares.
They could very easily issue a share dividend of 1 for 40 with that amount. Or a higher amount assuming the average buyback price is lower of course.
From the major shareholders perspective (inclusive of the founder), they get to boost their own shareholding by a minimum of 2.5%, without any outlay or activity needed on their own personal trading accounts.
The buybacks then aren't a way of supporting the share price alone, but for the benefit of shareholders (especially the major ones).
How big a dividend are we expecting for the upcoming quarter? Let's put a conservative 10 sen nett per share (high unlikely, since EPS should be MORE than 20 sen for the quarter). At 10 sen against the current RM7.29 price, that's a 1.37% yield for the QUARTER.
What about if a 1 for 40 share dividend is also issued? Using the current share price as a baseline, that's equivalent to another 18.225 sen dividend. Making the QUARTER'S payout equivalent to 3.87%. Pretty good, no?