Top Glove Corporation - DBS Research 2018-07-09: Aspion Legal Action May Trigger Earnings Cut

Top Glove Corporation - DBS Group Research Research 2018-07-09: Aspion Legal Action May Trigger Earnings Cut TOP GLOVE CORPORATION BHD SGX: BVA

Top Glove Corporation - Aspion Legal Action May Trigger Earnings Cut

  • Initiated legal proceedings against directors of Aspion for allegedly defrauding the company into acquiring Aspion from former parent company Adventa.
  • The company is claiming a sum of no less than RM715m.
  • Litigation suggests earnings shortfall of RM42m for Aspion.
  • Maintain FULLY VALUED with Target Price of RM8.66.

What’s New

  • Top Glove announced that its wholly-owned unit Top Care Sdn Bhd has initiated a writ action against two directors of Aspion Sdn Bhd for a sum of no less than RM714.86m.
  • Top Glove and Top Care also initiated two separate originating summons against Aspion’s former parent company Adventa Capital Pte Ltd to restrain the latter from disposing of its assets in Malaysia and Singapore at the same amount.
  • In the writ action, Top Glove alleged Aspion directors Low Chin Guan and Wong Chin Toh were in a conspiracy to defraud the company by tricking it into acquiring Aspion from Adventa Capital for RM1.37bn earlier this year.
  • The two originating summons against Adventa Capital entailed an ex-parte Mareva injunction awarded separately by the Kuala Lumpur High Court and Singapore High Court on July 2 for the restraining order.
  • The restraining order is effective until any award obtained by Top Glove and Top Care in the arbitration is fully satisfied or until further order. (This report is shared from SGinvestors.io)

Our view

  • Apart from the announcement, the company has not shared any other information because it is now a legal proceeding. However, the RM715m claim could imply that Aspion’s earnings may fall short by RM42m against expectations, based on the implied PE of 16.9x for the acquisition of Aspion. 
  • Note that the vendors for Aspion have provided profit guarantees of RM80.9m for FYE Oct18 and RM108.3m for FYE Oct19. A RM42m earnings shortfall may lower our earnings forecast by 2%-7% for FY18F-20F. However, impact on earnings would be less in FY18F, as the acquisition was only completed in April 2018. 
  • We understand that Aspion’s 3QFY18 results were below expectations. (This report is shared from SGinvestors.io)


  • We maintain our FULLY VALUED call and Target Price of RM8.66 pending the release of further information. 
  • Having said that, the legal action may pose earnings risks because we have included profit guarantees of RM80.9m for FYE Oct18 and RM108.3m for FYE Oct19 into our forecasts. Furthermore, valuation will likely be de-rated going forward.
  • Our current Target Price is based on +1 SD PE of 20x. Applying a mean PE of 16x and assuming earnings cut of RM42m per annum, our Target Price may need to be lowered to RM6.46, implying a downside risk of 47%.

Siti Ruzanna Mohd Faruk DBS Group Research Research | https://www.dbsvickers.com/ 2018-07-09
SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 6.66 Same 8.66