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TOPGLOV (7113) TOP GLOVE CORP BHD: Did Pankaj C Kumar Misunderstand?
Ben Tan

This morning an article titled "Valuation is an art" [sic], written by Pankaj C Kumar, was published on The Star website. You can read the full article here.

Without focusing on the opinion-based parts of the exposé, here's what the author starts his analysis with:

"Despite the majestic results, Top Glove got the brickbats from the investment fraternity in the form of downgrades, both in target price as well as earnings, as the majority of them saw a peak in earnings and expectations are now running high that the average selling price (ASP) is on a downtrend."

[Emphasis mine]

A few days ago I wrote a piece on some of the most curious valuations. You can read it here. One thing I didn't explicitly cover in my article at that time were the changes in earnings the corresponding analysts provided. Below is a summary of these changes in earnings, which according to Pankaj C Kumar were adjusted downwards (they were downgraded):

The author seems to be confusing ASPs being on a downtrend (something which the company said is not happening yet, and its earnings will in fact trend upwards in 2HFY21), with earnings projections being downgraded.

To summarize: no, analysts did not downgrade the company's earnings as a whole. The only one who downgraded his FY23 net profit forecast was the RHB analyst (by 9.55%), while leaving his forecasts for FY21 and FY22 unchanged, and slashing his price target by 19.5%. Three of the five analysts whose price targets we reviewed actually upgraded their earnings forecast, with one leaving his/her forecasted net profit unchanged.

And yes, valuation is an art, not an exact science. But when things make little sense we should certainly question them rather than attempt to explain them away simply as a "you don't understand" or "it's their opinion" matter. Assumptions and predictions may change, but when your assumptions on net profit change upwards or remain the same, it's truly complicated to justify your price target changing downwards (especially if the change is significant), isn't it?

Important disclaimer: Any views expressed are for informational and discussion purposes only. None of this information is intended as, and must not be understood as, a source of advice. It is imperative that you always do your own research and that you make any decisions based on your personal situation and your own personal understanding.


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