Quick Bites

09 July 2018

Top Glove Corporation UNDERPERFORM ↔

Price : RM12.10
A Surprise Law Suit Against Adventa Capital Target Price : RM9.40 ↔
By Raymond Choo Ping Khoon l pkchoo@kenanga.com.my

According to an announcement to Bursa Malaysia, TOPGLOV Share Price Performance

has taken legal proceedings against Adventa Capital Pte Ltd of 13.50
which the former is claiming for not less than RM714.9m arising 12.50
from an alleged conspiracy to defraud Top Care and TOPGLOV. 11.50

This came as a surprise and raises uncertainty over Aspion’s 10.50

future operations and earnings outlook. We maintain our FY18- 9.50

8.50
19E NP pending further clarifications from management. TP is 7.50
RM9.40 based on 24.5x FY19E EPS. Reiterate UP. 6.50
5.50
Legal action against ex-owner of Aspion for RM714.9m. In an 4.50
announcement to Bursa Malaysia, wholly-owned Top Care Sdn Bhd has 3.50
taken legal proceedings against Adventa Capital Pte Ltd as well as Low
Chin Guan (previous owner of Aspion), Wong Chin Toh and ACPL Sdn
Bhd (“ACPL”) vide a writ. In the writ, Top Glove and Top Care are KLCI 1,663.86
claiming for an amount of not less than RM714.9m arising from a YTD KLCI change -7.4%
conspiracy to defraud Top Care and Top Glove, and fraudulent YTD stock price change 51.4%
misrepresentations made by Low Chin Guan and Wong Chin Toh in
relation to the acquisition of Aspion Sdn Bhd. Top Glove and Top Care Stock Information
are seeking for a Mareva injunction to restrain Adventa Capital from Shariah Compliant Yes
disposing of its assets in Malaysia up to the value of RM714.9m pending Bloomberg Ticker TOPG MK Equity
disposal of the arbitration at the Singapore International Arbitration Market Cap (RM m) 15,462.9
Centre of which hearing is fixed on 13 July 2018. Recall, TOPGLOV has Shares Outstanding 1,277.9
in April 2018 completed the acquisition (following a term sheet proposal 52-week range (H) 12.48
to buy in Nov 2017) of Aspion Group, a manufacturer and distributor of 52-week range (L) 5.33
surgical, medical and medical examination gloves in Malaysia for 3-mth avg daily vol: 6,028,197
RM1.37b. The deal comes with a profit guarantee of RM80.9m and Free Float 61%
RM108.3m for FY18 and FY19 (for Aspion with FYE Oct), respectively. Beta 0.5
Risk of a de-rating amidst execution risk at Aspion. This latest news
came as a surprise and raises uncertainty over the future operations and Major Shareholders
earnings contribution from Aspion. Tan Sri Dr Lim Wee Chai 29.0%
Employees Provident Fund 5.2%
Potential impact to financials. We do not have sufficient details to Firstway United Corp 5.0%
quantify adverse impact to earnings in relation to uncertainty over the
profit guarantee attached to Aspion. For illustrative purposes; i) based on Summary Earnings Table
our-back-of-the envelope calculation, assuming we strip out the profit FY Aug (RM’m) 2017A 2018E 2019E
guarantee and assuming normal profits generated from Aspion, our Turnover 3409.2 4357.7 4400.3
FY19E earnings could be lowered by 12% and our TP lowered to RM8.25 PBT 383.1 570.4 632.6
from RM9.40; and ii) assuming TOPGLOV is unable to recoup the claims Net Profit (NP) 332.7 448.6 486.3
made, an impairment charge of RM714.9m (assuming worst case) will Core NP 332.7 448.6 486.3
erode TOPGLOV’s book value by 31% from RM1.77/share to Consensus NP - 454.1 553.0
RM1.21/share as at 31 May 2018. However, we are leaving our FY18E Earnings Revision - - -
and FY19E earnings and TP of RM9.40 unchanged pending further EPS (sen) 26.6 35.2 38.2
clarifications from management. EPS growth (%) (8.1) 32.7 8.4
Outlook. Looking ahead, Top Glove is in the process of constructing 2 NDPS (sen) 14.5 14.5 14.5
new manufacturing facilities namely, Factory 31 (operational by July BVPS (RM) 1.61 1.78 2.02
2018) and Factory 32 (operational by early 2019), which upon PER (x) 45.6 34.4 31.7
completion will boost the Group’s total number of production lines by an PBV (x) 7.5 6.8 6.0
additional 74 lines and production capacity by 7.4b gloves per annum to Net gearing (x) Net Cash 0.6 0.5
64.9b (+11%). Meanwhile, preparations for Top Glove's condom Net Div. Yield (%) 1.2 1.2 1.2
manufacturing facility have also commenced and expected to be
operational by June 2018.
Maintain UNDERPERFORM. TP is unchanged at RM9.40 based on
24.5x FY19E EPS (+1.5 SD above 5-year forward historical mean).
Reiterate UNDERPERFORM. The stock is trading at 34.4x and 31.7x on
FY18E and FY19E EPS, respectively, which is >+2.0SD above 5-year
historical mean.
A key upside risk to our call is higher-than-expected sales volume.

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Top Glove Corporation Quick Bites
09 July 2018

Income Statement Financial Data & Ratios

FY Aug (RM m) 2015A 2016A 2017A 2018E 2019E FY Aug (RM m) 2015A 2016A 2017A 2018E 2019E
Revenue 2510.5 2888.5 3409.2 4357.7 4400.3 Growth (%)
EBITDA 478.0 554.6 502.2 696.4 767.4 Turnover 10.3 15.1 18.0 27.8 1.0
Depreciation (100.0) (108.7) (117.4) (126.1) (134.8) EBITDA 56.6 16.0 -9.4 38.7 10.2
PBT 363.7 442.2 383.1 546.0 590.3 Operating Profit 77.8 17.7 -12.6 46.1 10.9
Taxation (83.6) (101.7) (88.1) (93.9) (100.3) PBT 69.3 21.6 -13.4 42.5 8.1
MI (3.0) (3.2) (3.3) (3.5) (3.6) Core Net Profit 55.5 28.8 -7.8 34.8 8.4
Net Profit 280.1 360.7 332.7 448.6 486.3
Profitability (%)
Balance Sheet EBITDA Margin 19.0 19.2 14.7 16.0 17.4
FY Aug (RM m) 2015A 2016A 2017A 2018E 2019E Operating Margin 15.1 15.5 11.5 13.1 14.4
PPE 1,137.7 1,124.8 1,523.4 1,843.4 2,163.4 PBT Margin 14.5 15.3 11.2 12.5 13.4
Subs. & Assoc. 14.5 125.4 98.2 5.2 5.2 Core Net Margin 11.2 12.5 9.8 10.3 11.1
Inventories 256.0 263.7 315.8 441.7 446.1 Effective Tax Rate 23.0 23.0 23.0 17.2 17.0
Receivables 395.5 368.6 471.3 680.5 687.2 ROA 12.1 13.1 8.7 10.7 15.5
Other assets 600.4 541.3 292.3 1,214.2 1,214.2 ROE 18.7 21.1 17.4 20.9 19.9
Cash 288.2 224.1 240.1 472.3 455.0
Total Assets 2,692.3 2,647.8 2,941.1 4,657.4 4,971.1 DuPont Analysis
Net Margin (%) 11.2 12.5 9.8 10.3 11.1
LT borrowings 131.9 101.1 61.8 1,444.8 1,444.8 Assets T/O (x) 1.1 0.9 0.9 1.1 1.1
ST borrowings 497.7 298.3 314.6 314.6 314.6 ROE (%) 18.7 21.1 17.4 20.9 20.0
Payables 365.8 331.0 419.5 537.3 546.6
Other liabilities 82.0 91.3 128.6 66.3 66.3 Leverage
Minorities 6.4 7.8 9.2 12.7 16.3 Net cash/(debt) N.Cash N.Cash N.Cash (1281.6) (1293.3)
Net Assets 1,608.3 1,818.3 2,007.4 2,281.8 2,582.5 Debt/Asset (x) 6.6 6.7 6.1 29.6 27.7

Share capital 312.1 627.4 636.6 646.0 646.0

Reserves 1,296.2 1,190.9 1,370.8 1,635.8 1,936.5 Valuations
Equity 1,608.3 1,818.3 2,007.4 2,281.8 2,582.5 EPS (sen) 22.7 29.0 26.8 35.2 38.2
BVPS (RM) 1.30 1.46 1.62 1.78 2.02
PER (x) 53.3 41.7 45.6 34.4 31.7
Cashflow Statement Net div (%) 1.7 1.2 1.2 1.2 1.2 1.2
FY Aug (RM m) 2015A 2016A 2017A 2018E 2019E P/BV (x) 9.3 8.3 7.5 6.8 6.0
Operating CF 337.0 245.1 441.2 356.1 312.3 EV/EBitda (x) 31.2 27.0 29.8 23.4 21.3
Investing CF (500.3) (146.7) (147.0) (145.4) (144.0)
Financing CF 211.1 (285.8) (180.1) (185.6) (185.6)
Change In Cash 47.9 (187.4) 114.2 25.1 (17.2)
Free CF 187.0 95.1 291.2 206.1 162.3

Source: Kenanga Research, Bursa Malaysia

Fwd PER Band Fwd PBV Band

PBV (X) FWD PBV FWD AVG PBV S.Dev +1 S.Dev -1 S.Dev +2 S.Dev -2
FWD PER FWD AVG PER S.Dev +1 S.Dev -1 S.Dev +2 S.Dev -2

PER (X)
33.0 6.00

30.0
27.0 5.00

24.0
21.0 4.00

18.0
15.0 3.00

12.0
9.0 2.00

6.0
3.0 1.00
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

May-15

Jul-15

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Source: Kenanga Research, Bloomberg

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 Top Glove Corporation Quick Bites
09 July 2018

Peer Comparison
Revenue Core Earnings ROE Net Div
Name Market PER (x) - Core Earnings PBV (x) Target
Last Price Shariah Current Growth Growth (%) Yld (%)
Cap Compliant
Price Rating
(RM) FYE 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 1-Yr. 1-Yr.
(RM'm) Hist. Hist. (RM)
Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd.

RUBBER GLOVES
HARTALEGA HOLDINGS BHD 5.80 19235.6 Y 03/2019 5.0 11.0 6.2 11.7 43.6 41.0 36.7 9.6 8.6 20.9 1.2 5.00 UP
KOSSAN RUBBER INDUSTRIES 8.50 5435.5 Y 12/2018 1.3 4.2 13.6 4.4 29.6 26.0 24.9 4.7 4.2 16.2 1.4 6.85 UP
SUPERMAX CORP BHD 4.48 2937.3 Y 06/2018 18.9 3.6 83.3 0.2 45.3 24.7 24.7 2.9 2.7 10.7 1.3 2.20 UP
TOP GLOVE CORP BHD 12.10 15462.9 Y 08/2018 27.8 1.0 34.8 8.4 46.3 34.4 31.7 7.5 6.6 19.1 1.2 9.40 UP

Source: Bloomberg, Kenanga Research

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PP7004/02/2013(031762) Page 3 of 4
Top Glove Corporation Quick Bites
09 July 2018

Stock Ratings are defined as follows:

Stock Recommendations

OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10%

MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of -5% to 10%
UNDERPERFORM : A particular stock’s Expected Total Return is LESS than -5%

Sector Recommendations***

OVERWEIGHT : A particular sector’s Expected Total Return is MORE than 10%

NEUTRAL : A particular sector’s Expected Total Return is WITHIN the range of -5% to 10%
UNDERWEIGHT : A particular sector’s Expected Total Return is LESS than -5%

***Sector recommendations are defined based on market capitalisation weighted average expected total
return for stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not
make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the
specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This
document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees.
Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document
or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or
employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or
otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.

Published and printed by:

KENANGA INVESTMENT BANK BERHAD (15678-H)

Level 12, Kenanga Tower, 237, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Chan Ken Yew
Telephone: (603) 2172 0880 Website: www.kenanga.com.my E-mail: research@kenanga.com.my Head of Research

PP7004/02/2013(031762) Page 4 of 4