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KUALA LUMPUR (September 11): Two glove makers, Top Glove Corp Bhd and Supermax Corp Bhd, have started their share buyback schemes as their share price plummeted after the meteoric surge of the past five months.
Top Glove, whose share price has fallen 32% from the peak of RM9.47, spent nearly RM100 million to buy back 14.93 million shares between RM6.12 and RM7.40 yesterday, according to its filing with the stock exchange.
The group also repurchased 1.39 million shares for RM9.995 million the day before. In short, the world’s largest producer of rubber gloves spent nearly RM110 million on the share buyback plan in the two days. The amount spent is equivalent to 31% of its cash box of RM347.8 million as of May 31. It also held investment securities worth RM1.45 billion at the end of May.
Nonetheless, Top Glove’s cash supply is likely to have skyrocketed in the third financial quarter ending August 31 amid the expectation of higher sales volume coupled with an increase in the average sales price.
Following today’s purchase, the group said its net accumulated outstanding treasury shares have risen to 18.31 million, compared to its adjusted issued capital of 8.13 billion shares.
Top Glove was Bursa Malaysia’s twelfth biggest loser today, and also the third most active stock.
Its peer, Supermax, also bought 5.48 million shares on the open market yesterday. And that cost him RM36 million, compared to his cash pile of RM1.18 billion as of June 30.
Meanwhile, Supermax spent around RM58.08 million to buy back 28.7 million shares between April 15 and April 30. The glove manufacturer has accumulated shares in treasury of 143.26 million, which is equivalent to a participation of 5.26%.
Stocks for two gloves have dropped substantially from the peak. Still, to date, Top Glove has gained 311% and Supermax 777%.
Downgrade on Top Glove
Macquarie Research downgraded its recommendation on Top Glove to an underperformance from a superior performance, and lowered its price target to RM 5.45 from RM 10.13 (adjusted for bonus issue).
The research firm said the downgrade is due to the fact that while its near-term results are expected to be strong and higher average sales (ASP) will drive ratings improvements, earnings are expected to reach its peak in the financial year ending August 31, 2021 (FY21). Macquarie said the stellar earnings performance is unlikely to repeat itself once the supply and demand equation normalizes, be it in the second half of 2021 or the first half of 2022.
Advise clients to sell hard.
“We would use this refresh cycle and the possible increase in the share price as an opportunity to profit.
“Although we maintain that PER in the long term [price-earnings ratio] The multiples should mimic those for consumer staples at 40-50x, we believe investors should attribute these multiples to long-term earnings, rather than maximum earnings. At current levels, Top Glove shares are trading at a PER of 70x FY23E, ”Macquarie Research said in a note dated September 9.
Macquarie expects Top Glove to post an annual net profit of RM1.75 billion for FY20, increasing to RM10.3 billion FY21, before dropping to RM2.02 billion for FY22.
During the first nine months ended May 31, 2020 (9MFY20), Top Glove’s net profit nearly doubled to RM575 million from RM290.51 million a year ago. Its revenue increased 14.3% to RM4.13 billion from RM3.61 billion, driven by unprecedented growth in sales volume as a result of the global COVID-19 pandemic.
Selling pressure builds
Glove counters continue to slide, stock prices move further away from the peaks they reached in August.
In particular, Supermax stocks took the biggest beating today. The stock led the decline yesterday, dropping 18.5% or RM1.38 to RM6.10, valuing it at about RM16.6 billion. The average target price of the stock is RM11.96.
Supermax was the third biggest loser and the fourteenth most actively traded stock on the stock exchange with 111.35 million shares traded.
Following Supermax in the line of fire is Kossan Rubber Industries Bhd. The fifth biggest loser in Bursa Malaysia yesterday finished 11.5% lower or RM1.26 lower at RM9.70, compared to its average price target of RM18.63.
Meanwhile, Hartalega Holdings Bhd fell 8.62% or RM1.12 to RM11.88, giving it a market capitalization of RM40.72 billion. The stock is down 42% from its high of RM 20.50. Its average price target is RM 22.61.
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