TOP GLOVE CORPORATION BHD (SGX:BVA)
Top Glove - Negative On Its Primary Dual Listing On HKEX
- Top Glove is proposing to issue up to 1.5bn new shares (raising RM7.7bn, including over-allotment of RM200m shares) with a dual primary listing on HKEX.
- We are negative on this news given the dilutive impact of the exercise. We estimate our FY21-23 earnings per share could be diluted by 11.2-15.1%.
- Our target price is reduced to RM7.80 (14x CY22 P/E. -1 standard deviation of its 5-year mean).
To issue 1.5bn new shares from primary dual listing on HKEX
- Top Glove (SGX:BVA) on Friday announced plans for a dual primary listing in which it will issue 1.5bn new shares (includes an over-allotment option to issue another 200m shares) via a global offering on the Main Board of The Stock Exchange of Hong Kong Limited (HKEX).
- The new shares would make up 16.2% of Top Glove's existing share base of 8.2bn (18.7% if over-allotment is exercised in full). The listing is slated to take place in May 21.
Could raise net proceeds up to RM7.7bn
- Assuming an issue price of RM5.20/share (to be determined later), Top Glove would be able to raise net proceeds of RM7.7bn (including over-allotment shares and net of listing expenses).
- We understand the proceeds will be mainly used to fund its existing capex plans (80%), potential merger and acquisitions plans (10%), environmental, social and governance initiatives (5%), as well as working capital purposes (5%).
Rationale for this proposed exercise
- According to Top Glove, the rationale for this dual-listing is:
- better reach to a wider investor base (especially in Hong Kong, North Asia),
- raise funds for capex plans (RM10bn in next five years),
- new platform for potential future fund raising, and
- better brand awareness.
- Once completed, Top Glove’s shares would then be listed and traded on Bursa, SGX-ST, and HKEX (with shares transferable among the three stock exchanges).
We are negative on this news at this juncture
- Despite rationales of this exercise, we are negative on this exercise as it is dilutive to earnings per share. Assuming that the over-allotment option is exercised, this exercise will reduce our FY21- 23F earnings per share by 11.2-15.1%. See calculation in report attached below.
- In our view, this fund-raising exercise is avoidable as earnings per share’s expected stellar FY21-22F results should be able to support its capex plans, while it has zero gearing currently.
- Bear in mind that Top Glove recently announced a 20% special dividend for the remaining three quarters in FY21 on top of an existing dividend policy of 50%.
- Also, Top Glove spent RM1.4bn to conduct share buybacks of 200m shares in the past one year. See report attached below for details.
Maintain ADD with a lower Target price of RM7.80
- No changes to our FY21-23F earnings per share forecast pending further updates on the matter. Still, we lower our Top Glove's target price to RM7.80, based on a lower P/E multiple of 14x CY22 P/E (-1 s.d below its 5-year mean) from 16x previously, due to concerns i.e.:
- ongoing ESG issues (treatment of foreign labor) and
- CBP ban on two of Top Glove’s subsidiaries remain unresolved since Jul 20.
- Assuming that this exercise is completed, our theoretical target price would be at RM6.80 rged share base of 9.7bn).
- See Top Glove Share Price; Top Glove Target Price; Top Glove Analyst Reports; Top Glove Dividend History; Top Glove Announcements; Top Glove Latest News.
- We still retain our ADD call for Top Glove.
Walter AW
CGS-CIMB Research
|
https://www.cgs-cimb.com
2021-02-28
SGX Stock
Analyst Report
2.56
DOWN
2.930
