We think that when a company spends over RM1 billion to buy back its shares within a very short period of time, it gives the impression of trying to influence the stock price — whether that is the intention or not.
Top Glove Corp spent RM772 million ($254 million) in the past two weeks alone (up to Nov 25) to buy back some 106 million shares. Added to the RM355 million spent in September, this brings the total amount spent on share buybacks to nearly RM1.13 billion in less than three months.
This is a sum that raises eyebrows by most yardsticks — about 64% of the company’s net profits for financial year ended August, and 39% of its cash and equivalent — and more so when the buyback is done as the stock price is falling.
Notably, the Employees Provident Fund (EPF) has also stepped up its purchase of Top Glove shares in November, adding almost 60 million shares and lifting its stake to 6.53%, from 5.71% at end-October. Since September, the EPF has acquired 114.5 million shares in Top Glove. Incidentally, Top Glove’s chairman, Tan Sri Lim Wee Chai, sits on the EPF board. So, who is selling? It would be interesting to compare the changes in the top 20 shareholders.
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Yes, Top Glove is flush with cash, making super profits during these pandemic months. But is the huge buyback in shareholders’ best interests, especially given the stock’s lofty — and most likely unsustainable — valuations? More importantly, could the money be better spent elsewhere?
Aside from its headline-grabbing share buyback spree, Top Glove has also been in the news for a far worse reason — the serious outbreak of Covid-19 cases at its factories in Klang.
The number of cases in the Top Glove cluster accounted for 93.1% of the 1,623 cases in Selangor and 69% of the record-breaking 2,188 cases in the whole of Malaysia on Nov 24. Its factories reported a shocking positivity rate of nearly 62% for the 6,506 workers tested so far.
If it can spend more than RM1 billion on buybacks, couldn’t it have spent just a few million ringgit to test and quarantine infected workers earlier to prevent this disaster? Better yet, investing, say, a mere 10% of the RM1.1 billion spent on share buybacks would have significantly improved housing and work conditions for its staff and spared economic hardship for all Malaysians by perpetuating the Conditional Movement Control Order measures.
As one of the largest and most profitable companies in the country, surely Top Glove must aspire to a higher standard of corporate citizenry and a responsibility to society at large? Instead of trying to address the underlying health-related issues, the company was more interested in reassuring investors that the temporary work stoppage would cause only a 3% fall in its FY2021 revenue. Really?
We estimate that Top Glove can acquire another 89 million shares before its major shareholder hits the 2% creeping threshold limit, which would trigger a mandatory general offer. Will the company continue to spend another RM650 million to buy back its own shares over the coming fortnight? And then what? This provides concerned shareholders with a window to sell before the company can no longer buy back its shares.
