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Top Glove primary dual listing on HKEX expected to dilute its FY21 to FY23 earnings per share — analysts

KUALA LUMPUR (March 1): Analysts foresee Top Glove Corp Bhd’s primary dual listing on the Hong Kong Exchange (HKEX) to dilute its FY21 to FY23 earnings per share (EPS).

CGS-CIMB Research’s analyst Walter Aw said he is negative on the exercise as it is EPS dilutive.

Assuming the over-allotment option is exercised, he estimated this exercise will reduce the group’s FY21 to FY23 EPS by 11.2% to 15.1%.

“In our view, this fund-raising exercise is avoidable as Top Glove’s expected stellar FY21 to FY22 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, it spent RM1.4 billion to conduct share buybacks of 200 million shares in the past one year,” he said in a note.

While retaining an "add" call on Top Glove, Aw lowered its target price to RM7.80, from RM8.90.

Meanwhile, MIDF Research’s analyst Ng Bei Shan said the exercise is expected to cause a dilutive impact of 15.5% and 15.4% to Top Glove FY22 and FY23 EPS.

“We do not expect a surge in production capacity until the end of 2024 except for its ongoing production expansion as the new plants are likely to be funded through the issuance of new shares,” she said.

She also expects minimal impact on its FY21 EPS as the exercise is slated for completion by June, which is about two months away from its financial year ending Aug 31.

“We think that the dilutive impact in the near term may be a slight negative, which might be offset by better-than-expected industry prospects and operational efficiency,” she said.

In the long run, she opined that the listing on HKEX is a move that the company takes to further improve its international profile.

She maintained her "buy" call on the stock with an unchanged target price of RM8.29.

On the other hand, Hong Leong Investment Bank Research’s analyst Gan Huan Wen said he is neutral on the exercise.

“It would open up Top Glove shares to be purchased by a larger investor base, it would also dilute existing shareholders, resulting in lower dividend yield,” he said.

Based on his back-of-the-envelope calculations, he said assuming issuance of 1.495 billion new shares, the group’s FY21 dividend yield would fall from 17.7% to 14.9%, based on a 70% pay-out ratio of FY21 earnings.

He maintained his "buy" call on the stock with an unchanged target price of RM8.06.

AmInvestment Bank Research’s analyst Thong Pak Leng, meanwhile, said the issuance of new shares will result in earnings dilution and reduce Top Glove FY21 to FY23 EPS forecasts by 14.7%, 13.2% and 12.7% respectively.

“Hence, we lower our fair value from RM6.50 to RM5.63 based on 2022 EPS over an unchanged price to earnings ratio of 23 times. As there is a little potential upside, we maintain our 'hold' recommendation on Top Glove,” he said.

TA Securities analyst Tan Kong Jin, however, is positive he proposed dual primary listing as it increases Top Glove’s investor base in Hong Kong and North Asia.

“Moreover, the Hong Kong stock exchange is much more developed than Bursa Malaysia in terms of market depth and breadth,” he said.

Based on his back-of-the-envelope calculations, he said assuming completion of the exercise in end-FY21, this would bolster the net cash position from RM1.2 billion as at end 1QFY21 to over RM8.9 billion.

“However, we estimate EPS dilution of circa 15% in FY21 post completion of dual-listing exercise,” he said.

At noon break, Top Glove shares fell 26 sen or 4.96% to RM4.98, valuing the group at RM41.93 billion.


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