Is Top Glove worth 32 ringgit per share?
Top investment analysts say Top Glove’s share price is poised for more gains in the coming months, despite having skyrocketed 400% this year.
Top Glove share price: What’s the update?
As at the close of Thursday 23 July 2020, the stock – listed on both the Singapore Exchange (SGX: BVA) and Bursa Malaysia (KLSE: TOPGLOV), traded at S$8.54 per Singapore share - a new all-time high.
Meanwhile, the company’s Malaysia listing gained an additional 6% to close above 26 ringgit a share on the same day.
IG’s market analysis showed that ‘buys’ (going long) formed 52% of all trades on the Top Glove (SGX) counter on Thursday.
In terms of client outlook, 89% of IG client accounts with open positions in this market anticipate that Top Glove’s share price will rise, with the remaining 11% holding short positions.
What caused Top Glove’s recent massive stock surge?
Top Glove’s current share price rally began last Friday 17 July, as the company rebounded from reports a day earlier that two of its subsidiaries were placed under a detention order by US Customs and Border Protection (US CBP).
This means that any disposable gloves distributed by the two entities cannot be sold in the US – which form 25% of Top Gloves’ total sales and orders. However, investor and analyst rumblings about a potential resolution was able to quickly put those concerns to bed.
This allowed Top Gloves’ Singapore and Malaysia stocks to finish the week 16% and 17% higher.
On Monday 20 July, Top Glove’s share price received another boost after it announced the issuance of up to 5,476,974,322 (5.48 billion) bonus ordinary shares to existing shareholders.
The proposed bonus issue will be undertaken on the basis of two bonus shares for one existing new ordinary share, according to a Bursa Malaysia filing.
Following the announcement, Top Glove’s Singapore shares rose nearly 9% to touch S$8.54 briefly, based on IG data.
The world’s largest glove manufacturer has been one of the top Southeast Asian equity stories this year, as its market capitalisation has skyrocketed over 400% since the start of the year.
The company has been a rare beneficiary of the Covid-19 pandemic, with its disposable rubber gloves in hot demand among both medical and non-medical sectors.
Top Glove share price: Where next according to top analysts?
Top Glove’s Malaysia shares currently have an average price target of 32.34 Malaysian ringgit per share, based on the six newest analyst reports and ratings. This equates to a 23.8% upside from Thursday’s last traded price of 26.12 ringgit.
Public Bank analysts on 21 July reiterated a ‘buy’ rating on the stock, while raising their price targets to 26.70 ringgit. They also increased their price-to-earnings ratio for the stock to 33x (at a +1 standard deviation of its five-year historical mean).
The analysts stated that the bonus issue ‘did not come as a surprise’ as this is ‘seen as a form of reward to existing shareholders’, considering Top Glove’s share price performance this year.
On the point of the US CBP ban, they noted that Top Glove has been requested to perform an audit before the ban can be lifted. ‘We think that Top Glove will likely pass the audit, considering that the group has successfully completed close to 80 audits in CY19,’ they wrote.
Meanwhile, RHB analysts also maintained a ‘buy’ on Top Glove, alongside a higher target price of 33.30 ringgit per share, up from 28.88 ringgit previously. This represents an over 30% upside and estimated 1% annual yield.
The researchers wrote that they are positive on the stock as they believe the company’s average selling price (ASP) has increased further, with the demand-supply imbalance of gloves still prevalent amid the ongoing Covid-19 pandemic. This led them to raising FY20-22 earnings estimates by 17% to 68%.
However, an ‘effective’ Covid-19 vaccine that will be made available globally ‘sooner than expected’, as well as a longer-than-expected resolution of the US CBP detention order, are two potential risks of Top Glove’s continued share price performance in the coming months.
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