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KUALA LUMPUR (Oct 14): Top Glove Corp Bhd, which is evaluating its plan for a double primary listing on the Hong Kong Stock Exchange (HKEx), is said to be considering raising more than $ 1 billion from fiscal year quotation.
Hong Kong will be the third largest stock exchange on which the world’s largest rubber glove manufacturer is listed, should its plan materialize. Its shares are currently listed on the Bursa Malaysia and Singapore Exchange.
The listing status on HKEx could be seen as a testament to Top Glove’s success. Besides that, what is the rationale for the listing exercise? Is it to get fresh capital?
“I think the company doesn’t really need the money given its current level of profitability,” TA Investment Management chief investment officer Choo Swee Kee said when contacted by The Edge.
He does not think Top Glove needs to raise funds for organic expansion, as its existing cash flow should be sufficient, adding that the group has recently spent RM354.74 million on share buybacks.
Top Glove cash balance increased to RM1.21 billion as of August 31.
If no major shareholder wants to offer its shares for sale, then it has to issue new shares, Choo said.
“Management probably believes that by listing on more exchanges, they can attract more investors to the company and improve its profile,” he added.
Both Reuters and Bloomberg have cited sources saying the rubber glove maker will raise between $ 1 billion and $ 2 billion from the float exercise.
Options are available for Top Glove to explore. If it is true that Top Glove is raising fresh capital, the group will have to issue new shares, which will dilute the existing equity stake. In addition, you could also sell your own shares that you have bought back on the open market.
Top Glove currently holds 49.8 million shares in treasury. Based on the last traded price of RM9.09, the share portion is valued at RM452.7 million.
An analyst, who declined to be named, agreed that the listing would likely involve an offer to sell own shares and perhaps shares of Tan Sri Dr Lim Wee Chai.
“With the windfall gains for the next two years, Top Glove does not need to raise more cash. Also, they were already in a net cash position as of 3QFY20 (third quarter of financial year 2020),” the analyst said.
According to Bloomberg data, the consensus earnings estimate is RM8.26 billion for fiscal year 21 ending August 31, 2021, with Maybank IB Research analyst Lee Yen Ling’s highest forecast from RM11.22 billion. This indicates how strong Top Glove’s operating cash flow could be in the current financial year.
In general, analysts and fund managers view the listing plan positively, arguing that it will improve Top Glove’s visibility internationally.
“If Top Glove trades through its existing shares, then it is positive, as it increases investors’ accessibility to Top Glove. However, if it is by issuing new shares, then less … unless they can justify well the cash collected, “said the analyst.
Phillip Capital Management Sdn Bhd’s chief investment officer Ang Kok Heng commented that it will be good in the long run for shareholders as it allows Top Glove shares to be more liquid.
He noted that this also presents an arbitrage opportunity for investors between the two markets.
“At the moment, they (Top Glove) don’t really need to raise cash,” Ang said. However, he said this may be due to the group’s long-term expansion plan.
“If the new cash raised is going to be used for expansion, which in turn will bring more revenue, then the so-called dilution is only temporary,” Ang said.
Last week, Top Glove announced that it set aside RM10 billion for capital expenditures from fiscal year 21 to fiscal year 25.
On the other hand, some quarters noted the rally in Top Glove’s share price this year, commenting that even without the HKEx listing, Top Glove is not currently short of buying interest.
In addition, some also noted that not many Malaysian companies have done well on any foreign stock exchange.
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