Top Glove - CGS-CIMB Research 2020-10-14: Making Progress On Plans To List In Hong Kong

SGinvestors.io

TOP GLOVE CORPORATION BHD (SGX:BVA)

Top Glove - Making Progress On Plans To List In Hong Kong

• Reuters, a global news provider, reported that its sources indicate that Top Glove (SGX:BVA) has hired banks to arrange a Hong Kong listing that can raise US$1bn-2bn.
• Yesterday, Top Glove made a Bursa announcement indicating that it is evaluating a dual primary listing on Hong Kong’s stock exchange. See Top Glove Announcements.
• Reiterate ADD on Top Glove, with unchanged Target Price of RM10.00 (17x CY22F P/E).

#TopGlove announced it's evaluating a dual primary listing on #HKEX.

Top Glove Company Announcements (SGX:BVA) | https://t.co/bl10v3HApX https://t.co/jL2YoW18zG

— SGinvestors.io (@SGinvestors) October 12, 2020

Reuters reported that Top Glove has hired banks to arrange a Hong Kong listing

• Reuters, a global news provider, reported that two unnamed sources revealed that Top Glove has hired three banks (Citigroup C.N, China International Capital Corporation, and UBS) to arrange a Hong Kong (HK) listing.
• While this information has been neither confirmed by Top Glove nor made public at this juncture, sources indicate that Top Glove is aiming to raise up to US$1bn-2bn (RM4.1bn- 8.2bn based on US$/RM rate of RM4.14) from this listing.
• Note that Top Glove is currently listed in both Malaysia and Singapore. Our channel checks reveal that a potential HK listing would take up to 6-9 months.

Top Glove is evaluating a dual primary listing on HK stock exchange

• To recap, Top Glove made a Bursa announcement yesterday that indicated its intentions to evaluate a dual primary listing on HK’s stock exchange. See Top Glove Announcements. It also stated that the evaluation process is in the preliminary stages and a structure has not been finalised.
• Top Glove stated that the purpose of the proposed listing, if undertaken, is mainly to:
  1. have a presence in a larger, more active and liquid stock exchange,
  2. enlarge and diversify its investor base and
  3. provide an alternate and larger fund raising platform.

5-10% dilution to Top Glove's FY21-23 EPS assuming US$1bn-2bn is raised

• At this juncture, we are neutral on this matter as:
  1. key details remain scarce and
  2. this news has yet to be confirmed by Top Glove itself.
• Assuming that Top Glove is aiming to raise up to US$1bn-2bn (RM4.1bn-8.2bn) from a primary HK listing, we believe that there could potentially be a 5.3-10% dilution to our current FY21-23F EPS. This is assuming that:
  1. Top Glove will issue 460m-910m new shares at RM9.09/share,
  2. no interest income from the IPO proceeds raised and
  3. the cash is not used for any merger and acquisition (M&A) exercises.

Potential funds are likely to be used for expansion purposes

• In our view, the funds raised from the potential primary HK listing will mainly be utilised for:
  1. future capacity expansion plans or
  2. potential M&A exercises.
• To recap, Top Glove recently announced that it has earmarked up to RM10bn worth of capex over the next five years (FY8/21-FY8/26). This includes plans to raise its total glove production capacity by another 100bn pieces annually (currently 85.5bn pieces p.a.) as well as investments in other key areas such as automation, upgrades to workers’ facilities and acquisition of land bank for future expansion.

Reiterate ADD on Top Glove

• We make no changes to our ADD call and Target Price of RM10.00 (17x CY22 P/E). We await further details on this matter. Note that we only peg Top Glove to its current 5-year mean despite the current favourable operating environment and robust earnings prospects, as we acknowledge that FY21F could potentially be a one-off exceptional year.
• We continue to like Top Glove, as it is the key beneficiary of higher glove demand owing to COVID-19 given its position as the world’s largest glove maker.
• See Top Glove Share Price; Top Glove Target Price; Top Glove Analyst Reports; Top Glove Dividend History; Top Glove Announcements; Top Glove Latest News. 
• Potential re-rating catalysts include:
  1. swift resolution on the CBP ban placed on two of Top Glove’s subsidiaries,
  2. better-than-expected demand for gloves and
  3. higher-than-expected increase in selling prices.
• Downside risks: discovery of a cure/vaccine for COVID-19, stiff pricing competition, and a spike in raw material prices.

Walter AW CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-14

SGX Stock Analyst Report ADD MAINTAIN ADD 10.000 SAME 10.000