(by HGTan)
On first glance of proposal, the issue surfaced is EPS and in turn divided per share will be diluted given issuance of new shares for the HK IPO.
Believe this perception may lead to investors further trimming down holding given the jittery mood on glove sector outlook as a whole.
My take is this move is timely given supernormal profits years in FY21 and FY22
The 15 to 18% of new shares due to new IPO will chip off existing EPS and dividends per share but investors may not hv inclination yet on how high are the earnings to be reported in FY21/22.
With such super normal profits kicking in and in turn super high dividend per share over next two FYs, one can only celebrate for the dividends (akan datang !!)
With this move of dual listing and new inflows of funds, the group is well equip to scale new highs.
Share below on the rationale for the Proposed Dual Primary Listing
(summarised by TG management) :
1. HKEX platform allows Top Glove to broaden investor reach/base and allows direct participation from new private and institutional investors in Hong Kong and North Asia. This serves to strengthen liquidity of Top Glove's share trading and to enhance stakeholders' long term value.
2. To provide additional financing flexibility and a new platform for future fund raising to finance potential M & A exercises for accretive earnings. This will enhance the visibility of Top Glove's profile among international funds/investors, banks, customers, suppliers, research analysts and media, resulting in stronger brand awareness for Top Glove.
3. The stronger profits moving forward will improve EPS. The proceeds to be raised from the HK IPO will be used for expansion activities to further increase the production capacity and strategic business expansion for better sustainable profits. As the company is going through an exceptional high profit period, the EPS dilution effect is mitigated.
4. The exceptional high profit with the special dividend of 70% from Q2 to Q4 FY2021 will provide shareholders with higher dividend compare with previous years, and mitigate the EPS dilution effect.
5. The funds raised and the current cash holding will be a strong reserve to fund Top Glove's ongoing growth and strategic expansion after the period of abnormal profits. With this, the group is hopeful that the existing shareholders can continue to enjoy a sustainable good dividend moving forward where the existing shareholders currently enjoys.
6. HKEX as a regulator in addition to Bursa and SGX would upgrade Top Glove's corporate governance standards in Top Glove's journey towards Fortune Global 500.
Separately, TG will release 2QFY21 results on 9 March afternoon. Believe it will be a commendable set of numbers.
Both our anakyst Gan Huan Wen and mkt consensus estimate net profit around RM10.5bn in FY21 with a 50% drop off in FY22.
Believe TG wld be able to exceed these expectations and deliver earnings surprises again!!
In the way, the new HK IPO addresses concerns of earnings sustainability beyond FY22 as the group builds up its war chest and ready to cherry pick earnings accretive ventures. This will at least mitigate earnings down cycle risks beyond FY23.
As per my previous watsapp, believe value emerging at current level of RM5
