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Tuesday, March 15, 2016

Brokers Report: Top Glove - Secondary Listing on SGX

Maintain Buy with unchanged Target Price of RM8.30

Top Glove
Nothing to be excited about
We are neutral on Top Glove’s proposed secondary listing on the SGX as it is unlikely to boost liquidity nor valuation. Separately, we expect 2QFY8/16 profits to be sequentially weaker but still within ours and street’s forecasts. Top Glove presently trades at mean valuation, at 16x 2017 PER. Maintain earnings forecasts and TP of MYR8.30, based on 25x 2017 PER, pending results release.

Proposes secondary listing on SGX

Top Glove has proposed to undertake a secondary listing for its existing entire issued and paid-up share capital on the Main Board of the Singapore Exchange (SGX). Moreover, Top Glove intends to explore with its substantial shareholder(s) the possibility of selling a portion of their shareholdings in Top Glove of c.SGD20m (MYR59m) in the open market of SGX. The listing is expected to be completed by 3Q16.

Neutral on the secondary listing

We are neutral on the proposed exercise. Top Glove already offers high liquidity and the SGD20m shares sale by its main shareholders amounts to just c.1% of total shares issued which will not add substantially into its liquidity. Additionally, valuations of the SGX-listed glove players are also below that of Bursa Malaysia-listed glove players; hence, the secondary listing will not boost Top Glove’s valuations.

Expect weaker 2QFY8/16 results

2QFY8/16 results will be released tomorrow and we expect a net profit of MYR100-110m (-22%-14% QoQ, +78%-96% YoY), indicating 6MFY8/16 at 57-59% of our full-year forecasts. The weaker QoQ earnings could be due to: (i) seasonally softer volume (c.-5% QoQ, c.+12% YoY); and (ii) lower margins on the downward adjustments in ASPs (c.-5% QoQ) as the group passed on the USD benefits. Top Glove kept a substantial portion of the USD benefits in 2015 and have passed on more in 2QFY8/16.

Source: Maybank Research - 15 March 2016

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