SINGAPORE (July 21): Top Glove has been topping the news since it announced an undertaking of a bonus issue. Under this, the world’s top glove manufacturer will exercise some 5.48 billion shares on the basis of two bonus shares for each existing one.
This proposed issuance serves to reward shareholders and enhance their participation in the company’s equity through the number of shares held, Top Glove noted in its July 20 regulatory filing.
Executive chairman Lim Wee Chai says the move is in line with the company’s priority to add and create value for its shareholders.
He adds, “this will also enable us to increase the number of shares in issue, which is expected to create more liquidity and marketability for Top Glove’s shares”.
The announcement comes days after the US Customs and Border Protection (CBP) placed a detention order on the disposable gloves manufactured by two of the company’s subsidiaries – Top Glove Sdn Bhd and TG Medical Sdn Bhd.
UOB Kay Hian analyst Philip Wong says the issue had arisen from labour-related issues such as passport retention by employers and employees having to bear recruitment fees.
“CBP’s decision may have been spurred by possible lobbying by non-governmental organisations,” he says in a July 17 note, following a call with Top Glove’s management.
Specifically, the management points to the latter and believes it can be resolved with an estimated payment of RM20 million – 50 million ($6.5 million - $16.3 million). It plans to settle this in the next two weeks.
“The matter of contention is being addressed, leading management to believe it could resolve the Withhold Release Order by the US authorities within a matter of weeks,” notes Wong.
He adds that the affected customers – who account for half of Top Glove’s US sales and 12.5% of overall sales volume – are likely to wait it out. This is due to tight glove supplies, year-long delivery lead times and premium spot prices.
To this end, Wong says he “remains sanguine” over the counter’s near-term prospects. “The recent development is likely just a speed bump to its exciting super-cycle earnings growth ahead,” he adds.
He is thus maintaining his “buy” call and target price of RM21.90 ($7.14). This gives the counter an 11.2% upside from its RM19.70 close on Friday (July 17).
As at 11.20am shares of Top Glove were up 7 cents or 0.859% to $8.22.
