Posted by FCTITAN > 2021-02-28 21:48 | Report Abuse

Hi Ben, after reading your article I came across the local channel reporting news on Gloves stocks, I believe this will negatively impact the share price tmr. https://www.youtube.com/watch?v=_axFGnW-7FE&ab_channel=Astro%E6%9C%AC%E5%9C%B0%E5%9C%88
Seems like the near term pressure will not subside, what are your thoughts on this?

Posted by CharlesT > 2021-02-28 21:52 | Report Abuse

If i m not mistaken the same few analyst were very bullish on Glove during End 2020 too....lol

Posted by CharlesT > 2021-02-28 21:53 | Report Abuse

Personally i think glove co have reached bottom for this round...

Posted by FCTITAN > 2021-02-28 22:00 | Report Abuse

Can feel the surrounding pressure from all sorts of sources haha, I believe that no matter how well the QR gloves company produce will not increase share price anymore Instead any drop in QR will lead to the panic selling of glove shares. Seems like all hope is lost. Just my personal opinion, please dont bash me cause the forum is too toxic I usually hide myself haha.

Posted by CharlesT > 2021-02-28 22:00 | Report Abuse

Nevertheless the current valuation of TG is not expensive

Posted by CharlesT > 2021-02-28 22:01 | Report Abuse

stock mkt is fun....u will see

Posted by Flying Fox > 2021-02-28 22:03 | Report Abuse

Indeed, I always find Mr Market of Malaysia never walk into the path of discounted cash flow method, he always harshly take future profit as guide, and turn left & right whenever good & bad news surfaced along the way

Posted by CharlesT > 2021-02-28 22:04 | Report Abuse

Basing on the predicted profit of rm1.5B+ FY 2025 or EPS ard rm0.20, at current price of rm5.20+ TG is traded at fwd PE 26+

Posted by CharlesT > 2021-02-28 22:05 | Report Abuse

Cheap or not cheap up to u to decide..

Posted by Flying Fox > 2021-02-28 22:09 | Report Abuse

Another potential bad thing is existing players are increasing their production capacity at least 50% & many new or inexperienced players rushed to jump into the party.

What will be the effects of increased production in 12 -18 months time?

Posted by Flying Fox > 2021-02-28 22:10 | Report Abuse

Anyway, good luck to all glove stock lovers, there are many good opportunities out there, why must hang yourselves at one tree only?

Posted by CharlesT > 2021-02-28 22:12 | Report Abuse

U can kindly recommend some...

Posted by Flying Fox > 2021-02-28 22:17 | Report Abuse

No lah, my recommendation may lead people to Netherlands, can look at top 10 gainers list everyday, it already shows opportunities are there to take, if anyone dare

Posted by Ben Tan > 2021-02-28 22:39 | Report Abuse

FCTITAN, CharlesT, Flying Fox, thank you for your comments.

FCTITAN, unfortunately I don't speak Chinese. Could you give a short summary of the conversation?

CharlesT, not sure which analysts you are talking about, but in general very little has changed in the business situation of Top Glove from end of 2020 to now, so I wouldn't be surprised if someone's opinion hasn't changed since then. This is the first time I see valuation based on PE five years from the present year. Until then, do you discount any profits and their influence on the balance sheet of the company?

Flying Fox, projected ASPs are a product of the supply-demand dynamics in the market. In other words, extra supply (and extra demand) is taken into account when future ASP projections have been made by Frost & Sullivan. You can also refer to my previous article: https://klse.i3investor.com/blogs/bursainvestments/2021-02-16-story-h1541112319-Glove_Supply_and_the_Supply_Demand_Disequilibrium_Top_Glove_Supermax_Ha.jsp

In terms of other opportunities, unfortunately I personally don't see many good ones at present.

Posted by FCTITAN > 2021-02-28 23:19 | Report Abuse

Summary: there are two analysts, both of them are the same opinion that gloves stock will continue to decline, however one of them is of the opinion that glove stocks is a valuable investment after it dropped to a certain point since gloves companies are better than bank stocks in terms of CAGR and one of the most stable CAGR stocks.

The other analyst on the other hand is of the opinion that in the future there will be a glove price war, where the big 4 glove companies will sell their gloves at a loss in order to eliminate the smaller glove companies. which will lead to the massive drop in share price due to the losses suffered by the gloves company.

I hope my summary is good enough for you to understand it hahaha.

Posted by FCTITAN > 2021-02-28 23:26 | Report Abuse

Also i missed out a part, the more pessimistic analyst thinks that the glove supply will exceed the demand and will be more than the human population, which requires the market to use 1-2 years to consume the excess gloves hence drop in glove stocks. He also state that when a company is enjoying abnormal profits, and giving out huge dividends, then it is time to sell since the dividends will not be consistent and will drop, the drop in capital gain will exceed the dividend given by the stocks hence it is not a wise choice to invest in gloves.

Posted by Yong Ken > 2021-02-28 23:39 | Report Abuse

Frankly still not know what is the message. From the calculated PV is 105.952 billion compares to today mkt cap is 42.98 billion. Can i assume the author try to tell the TG future mkt cap will inflates 2.5 times?

Posted by Ben Tan > 2021-02-28 23:40 | Report Abuse

FCTITAN, thank you for the summary.

From what you say, it sounds very much like the pessimistic commentator has been largely unprepared for the conversation. Everything you are describing sounds like the person has at most a cursory idea about the business he is supposed to be discussing. Please refer to my article I linked to in my previous comment on the supply-demand dynamics matter.

On the "sell on high dividends" matter, what he says would be true if the stock was overvalued due to the excessively large dividend. For instance, in some cases during temporary abundance times, dividends (or more frequently earnings) will rise only temporarily, so using growth projections based on current year earnings/dividends would be incorrect. That is the reason why in such cases it is good to project earnings over a few years into the future, up to a point when earnings will potentially normalize. That is what I have done in this article, and evidently that is what the commentator has been lazy to do.

Posted by Ben Tan > 2021-02-28 23:46 | Report Abuse

Yong Ken, thank you for your comment.

All mentioned in the article is all I can say on this matter. I cannot discuss the market share price.

Posted by Bamboo Green > 2021-03-01 00:21 | Report Abuse

今天八点最热报: 手套股的黄金岁月已不再，手套价格割喉战即将爆发！
https://klse.i3investor.com/blogs/happy/2021-03-01-story-h1541945352.jsp

Posted by Bamboo Green > 2021-03-01 00:23 | Report Abuse

Fact: price war is coming

Posted by honestlee > 2021-03-01 00:34 | Report Abuse

How to have a price war when main ingredient nitrile butadiene to produce nitrile glove is in shortage? The price of nitrile butadiene ha gone up significantly and those foreigner glove manufacturers need to import the raw material from overseas. If raw.material is not enough how does oversupply come and price war occur?

Posted by honestlee > 2021-03-01 00:41 | Report Abuse

Secondly the analyst says glove companies making losses after a pandemic due to price war. Last I check topglove history of SARS they are still making money and no losses after SARS, have the analyst done his homework before going online?

Posted by FCTITAN > 2021-03-01 01:51 | Report Abuse

Ben, do you think that the news are published with the intent to affect the prices of glove stocks as the stated glove price wars are unlikely to happen in the short term, the timing of this news seems to be too good to be a coincidence. Feels like every media out there are bashing the glove stocks now.

Posted by honestlee > 2021-03-01 02:13 | Report Abuse

Friday topglove announced positive news about Hong Kong listing, Sunday news out saying negative stuff about gloves by those so called analyst which didn't provide any facts and figures to support. You could guess their intention was clear.

Posted by spectre007 > 2021-03-01 02:39 | Report Abuse

At rm5 for first time investors or even those adding for long term holding, it is cheap. Considering an estimated dividend of 70 sen for fy21 and say 50sen for fy22, your cost will be around Rm3.80. In 5 years time TG is going to be double in size, whether by way of production capacity or by way of enterprise value. Any hiccups during these 5 years will not be significant. Its the end result I look at which is double the size of what it is today at the very least. As such, by fy25, the price will not be what it is today. My 2 cents

Posted by CharlesT > 2021-03-01 06:21 | Report Abuse

Posted by spectre007 > Mar 1, 2021 2:39 AM | Report Abuse

At rm5 for first time investors or even those adding for long term holding, it is cheap. Considering an estimated dividend of 70 sen for fy21 and say 50sen for fy22, your cost will be around Rm3.80. In 5 years time TG is going to be double in size, whether by way of production capacity or by way of enterprise value. Any hiccups during these 5 years will not be significant. Its the end result I look at which is double the size of what it is today at the very least. As such, by fy25, the price will not be what it is today. My 2 cents

I shared yr thought. TG is relatively safer as compare to other glove co as its backed by the high DY.

CY2021 = RM12.503 billion (70% DY: estimated another Rm0.70 div)

CY2022 = RM5.844 billion (50% DY: estimated div ard Rm0.35)

CY2023 = RM3.097 billion (50% DY: estimated div ard Rm0.26)

CY2024 = RM2.319 billion (50% DY: estimated div ard Rm0.20)

CY2025 = RM1.572 billion (50% DY: estimated div ard Rm0.13)

Total estimated div : RM1.64. SO yr net cost (rm5.24-RM1.64) will be Rm3.60. Basing on estimated profit of RM1.572B in FY2025 (Eps RM0.19), fwd PE then will be ard 19.

The above has yet to take into consideration of the 15% additional share issuance for HK listing.

Posted by CharlesT > 2021-03-01 06:26 | Report Abuse

Estimated Fwd PE of TG (basing on current price of Rm5.24)

CY2021 = RM12.503 billion (EPS RM1.52 PE 3.44)

CY2022 = RM5.844 billion (EPS RM0.7 PE 7.48)

CY2023 = RM3.097 billion (EPS RM0.37 PE 14.16)

CY2024 = RM2.319 billion (EPS RM0.28 PE 18.7)

CY2025 = RM1.572 billion (EPS RM0.19 PE 27.6)


Anyway, PE can be fm 1 to 100.....it's merely maths. lol

Posted by CharlesT > 2021-03-01 06:48 | Report Abuse

One retarded Affin Hwang Analyst's TP for TG : RM33 (or RM100 b4 bonus)

JPM 's TP for TG : Rm3.50

So far apparently JPM's TP seems to be most accurate one (vs RM5.24 now).

lol

Posted by newbie4444 > 2021-03-01 07:21 | Report Abuse

PE 27 FY 2025 cheap pls teach me.

Posted by pjseow > 2021-03-01 07:31 | Report Abuse

Ben Tan , thanks for the detailed analysis. I agreed with you that there are many assumptions using DCF method because after we added all the discounted cash based on some finite number of years ,there is still a terminal value for the company which requires assumptions. You arrived at a discounted enterprise value of 105.9 billion present value . If I divide this value with current 8.2 billion TG shares, the value per share is 105.9/8.2 . This give a value of rm 12.9 per share. In view of the coming listing of another 1.5 billion shares at presumably 5.20 , The total number of shares will increase to 9.7 billion and the total cash will be 105.9 + 7.8 = 113.7 billions. The current value
per share after listing will be 113.7/9.7 =
11.7 . This could be on the high side compared with RHB tgt price of 8.45 which also use DCF method.

Posted by pjseow > 2021-03-01 08:20 | Report Abuse

Newbie444, PE 27 in fy 2025 is neither cheap nor expensive. PE 27 is reasonable based on TG historical PE at stabilised state. Dont forget , you will teceive SUPER dividend of rm 1.06 in 2021, rm 0.5 in 2022,rm 0.26 in 2023 and rm 0.2 in 2024. The total dividend add up to rm 2.02 . This total us almost 40 % of current share price .

Posted by winterwolf > 2021-03-01 08:28 | Report Abuse

Just a brief note on the two analysts that gave their "valuable" opinions on national TV channel.

What is bottom fishing ? For a share like Topglove that dropped from 8 to 5, is 5 a bottom ? where is the bottom ? Is now not the bottom ? Topglove was trading at about 4.50 to 5.00 pre pandemic, though there was a 2:1 bonus issue in between, yet what was the quarter profit declared then ? what is the profit now and also the projected profit in 2025 ? All these are glaringly obvious.

For the 2nd analysts, i guess a few dose of fear mongering helps in bottom fishing ? Some how, the word anal-yst does makes sense at time.

To Ben Tan, thank you very much for your analysis. it helps many others out there to make investment decisions.

Posted by pjseow > 2021-03-01 08:36 | Report Abuse

Ben Tan detailed analysis is able to answer many questions on investors mind. The ASP will peak in 2021 and tapered off to 2025 . Look at the projected earning in 2025. It is 4.2 x of 2019 earning. This projected earning is based on a very reasonable post pandemic ASP , doubling of capacity ,utilization.rate of 86 % , exchange rate of 4 and net profit margin of 10 %. Today TG share price is less than 3x of pre pandemic but its projected earning in 2025 is 4x of pre pandemic in 2019. Dont forget the super duper dividend of about rm 2.02 you can get in the next 4 years based on 70 % payout.

Posted by CharlesT > 2021-03-01 08:46 | Report Abuse

The 70% div policy may only for FY 2021 or another year 2022 I think

To be more conservative apply 50% normal Div policy will do

Posted by Ben Tan > 2021-03-01 09:06 | Report Abuse

Bamboo Green, honestlee, FCTITAN, spectre007, CharlesT, newbie4444, pjseow, winterwolf, thank you for your comments.

Bamboo Green, this appears to be the same video we discussed above. Price war can occur when there is oversupply in a market. For an oversupply to occur, there needs to be a very low entry barrier, like with the protective masks business for instance. That is not the case with gloves.

FCTITAN, unfortunately I don't know much about the station or about the commentators they had invited. It is possible that the commentator you mentioned was just unprepared and misinformed.

spectre007 and CharlesT, based on 70% dividend payout, the dividend for FY21 should come at around RM0.95 to RM1.05.

pjseow, yes, thanks for pointing out RHB's analysis. I am still unclear on some of the assumptions they have made.

winterwolf, from what I am hearing, the commentator has been grossly unprepared. Whether that has been done on purpose, or if that person was let loose on fear mongering exercise, unfortunately we cannot know.

Posted by skyz > 2021-03-01 09:45 | Report Abuse

Appreciate your effort to drill in details supported with fact and figures. Thank you for adding value to the i3 investors discussion forum. Keep up the good work!

Posted by Ben Tan > 2021-03-01 10:43 | Report Abuse

skyz, CharlesT, thank you for your comments.

CharlesT, yes it would depend on how you calculate the dividends. Here's an example calculation for CY21 (the above note was about FY21) dividend calculation:

- Assume even income distribution for the 4 quarters of the calendar year.
- Assume 70% dividend payout for FY21 and 50% dividend payout for FY22 (conservative).
- RM12.503 billion net profit for the year = RM3.12 billion per quarter.
- Q1 of the CY will be done at 8.2 billion shares; the next 3 quarters will be done at 9.7 billion shares.

Therefore:
- Q1 DPS = RM0.266
- Q2 DPS = RM0.225
- Q3 DPS = RM0.225
- Q4 DPS = RM0.161
TOTAL DPS for CY21 = RM0.877

Posted by CharlesT > 2021-03-01 10:44 | Report Abuse

yeap, it will be less if u include the 15% new shares to be IPOed in HK

It's always good to be more conservative

Posted by Ben Tan > 2021-03-01 10:45 | Report Abuse

CharlesT, the above calculation is based on +1.5 billion shares for Q2, Q3, and Q4.

Posted by CharlesT > 2021-03-01 10:48 | Report Abuse

Another possible plus point could be extending 70% div policy to 2022 or longer in view of the additional funds fm HK IPO

Posted by CharlesT > 2021-03-01 10:49 | Report Abuse

Do yr own calculation n place yr bets. Good luck.

Posted by Ben Tan > 2021-03-01 10:50 | Report Abuse

CharlesT, yes, the above calculation is based on all the most conservative assumptions I could think of:

- Extra public listings coming in before 2QCY21 ends (i.e. they get a cut from the dividends)

- Dividend payout drops to 50% in FY22 even though the company will be very cash-rich

- Earnings are distributed evenly, even though Q4 is theoretically supposed to be weaker.

Posted by pjseow > 2021-03-01 10:54 | Report Abuse

Ben, although the 7.8 billion recd from HK listing is not considered as earning, it is still part of "income " recd as cash. It could be used to pay dividend also.

Posted by Ben Tan > 2021-03-01 11:00 | Report Abuse

pjseow, thank you for your comment.

Yes, but I want to make any assumptions in a conservative manner, whenever possible.

Posted by observatory > 2021-03-01 13:19 | Report Abuse

Ben, I view the decision by Top Glove to list in HK as full of self-contradiction!

Top Glove bought back its share at a price up to RM8 in Sep last year. The signal sent by management then was Top Glove was undervalued at RM8.

Later Top Glove announced special dividends of up to 70% of profit, which means it will return billions of cash to shareholders. The signal sent by management is they are flush with cash and more cash is on the way in the coming quarters. The signal sent is, even after their RM10 billion Capex plan, they still have so much cash on hand that they decide tp return to shareholders.

Now they have finally submitted for HK Listing, right on the heel of Intco Medical. The news report that Top Glove plans wants to issue 1.5 billion new shares and raises up to RM7.7 billion. This works out to be a listing price up to roughly 7.7/1.5 = RM5.13 per share.

https://www.theedgemarkets.com/article/top-glove-plans-float-shares-hong-kong-raise-rm77-billion

Contradiction #1 – If RM8 is undervalued in Sep, why raise a massive amount of equity capital at RM5.13 less than 6 months later, and dilute the existing shareholders in the process?

Has the business fundamental turned so bad in 6 months such that what's worth more than RM8 in Sep last year worths less 2/3 now?

The impact is not confined to Top Glove shareholders. Recall last year, the Tropicana board, where Tan Sri Lim was the chairman and substantial shareholder, also bought Top Glove shares at a much higher price then (although Tan Sri abstained from the vote). Should Tropicana shareholders now wish that their board should have just applied for the HK IPO at a cheaper price?

Contradiction #2 – If Top Gloves could afford to pay back billions of special dividends to its Malaysian shareholders, why the decision to raise RM7.7 billion in HK? The net effect is while paying RM1 or so special dividend to Malaysian shareholders, at the same time dilute their equity by another 15% to 20%. Picking the left pocket to give to the right pocket?

To me this feels like either management incompetence, or lack of sincerity, or both!

At least the gung ho Intco Medical is very consistent with their message. They think they can become number 1 and they go all out for it by raising as much capital and expanding as fast as they can. Their shareholders who buy into them cannot complain later as they have been warned.

Closer to home, the no drama Hartalega management has provided a much better example of good corporate governance – no dramatic SBB or special dividends or foreign listing; just focus on the business and deliver results.

This incident has illustrated again why Top Glove suffers from a valuation discount while Hartalega enjoys a premium!

Posted by CharlesT > 2021-03-01 13:31 | Report Abuse

The best thing for TG is to delist fm Bursa n relist in HK...making more sense

Posted by Ben Tan > 2021-03-01 13:31 | Report Abuse

observatory, as always thank you for your detailed comment.

First, note that the IPO price is not settled. Second, you are missing the bigger picture, although it must be harder to miss it as you are commenting under this particular post.

Objectively speaking, Top Glove doesn't need the IPO. The company will generate enough cash to finance its capex plans without it. If you read through the details of the proposed usage of the funds, you will realize that. As mentioned in my post above, we still don't have enough information on the IPO to draw final conclusions, but the entire exercise will most likely just boil down to a movement of funds. This is precisely why Top Glove is using cash on hand to pay bonus dividend and for share repurchases. I expect now that the listing exercise has been confirmed, SBB will become more aggressive, and it is possible that extra bonus dividend might be declared. In other words, from a purely business point of view, the two events will cancel out each other.

The reason why the IPO is happening is because the HKEX is approximately 5 times larger than Bursa+SGX taken together, and it gives the company direct exposure to US and China investors. Nothing more than that. Tapping into a larger market will make it easier to potentially raise fund in future, and of course it would mean that the company will trade closer to its fundamental value. The company has simply grown too big for Bursa (and SGX).

Comparison with Intco in this situation are unfair. Intco starts from the position of a company approximately 10 times smaller than Top Glove (as of last year). It has to be entirely on the aggressive if it wants to expand as much as it wants. That's not the case with Top Glove.

Posted by Stockisnotfun > 2021-03-01 15:07 | Report Abuse

lol you all got digest carefully what they say or not in the video? In summary, both analyst agreed gloves will still have further space to drop before covid ended.

One say the glove will have price war and another say we should buy the glove after covid ended when is low. So simple to understand why try to prove the analyst is wrong or not? Both already agree there will be further downside risk in upcoming period until covid ended. There's the message they trying to deliver. That simple.

Posted by observatory > 2021-03-01 16:33 | Report Abuse

Ben, thank you for your response. I forgot to say earlier that I appreciate your effort in pulling the various information together for the benefit of readers. The info is useful, even though we seem to draw different conclusions on the merits of Top Glove management.

I agree the HK IPO price has not been settled. The investment bankers need to touch base with potential investors to work out a mutually acceptable price. There is always the happy possibility that TG share price in Bursa rebounds sharply above RM8 and somehow Top Glove successfully raises capital in HK close to that valuation.

However, based on Top Glove announcement to Bursa on 26 Feb, the company proposes “issuance of up to 1,495,000,000 new Top Glove Shares raising up to HKD14.95 billion (equivalent to approximately up to RM7.77 billion)”

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3133602

In other words, even if the market price remains sluggish around RM5, the management still plans to go ahead with the HK IPO at a price up to ~RM7,770m/ 1,495m = RM5.2. That is the stated price in their announcement. After spending a lot of money on the IPO, I doubt the management will abandon the IPO if they can get their stated price (unless they don't receive the necessary approvals)

As such, the management needs to answer why they spent up to RM1.4 billion of shareholder funds to buy back shares at higher prices earlier; and now issue billions of new shares at a lower price, grossly diluting their existing shareholders? Why buy high and sell low?

Of course, I understand the logic that a listing at HKEX could raise the company profile and facilitate future fundraising. But Top Glove management could still have gone for the HK IPO without the preceding drama of the most aggressive SBB in Bursa history, done at a much higher price. How does it benefit Top Glove long-term shareholders? I also fail to see how the high price drama earlier would impress future HK investors.

Now with hindsight, this entire exercise resembles a movement of funds. I’m not sure whether this is by plan or by accident. If it’s by plan, it means the Top Glove management has not been entirely truthful in the past since their aggressive SBB actions have created the impression of stock being undervalued. Only now they say they are willing to list at a much lower price. What is the message to new shareholders who bought at RM7, 8 or above based on management past SBB action?

If it’s by accident, Top Glove will need to brush up on its financial management skill.