KUALA LUMPUR (April 23): Analysts are neutral on Top Glove Corp Bhd's proposed bonus issue as well as bond issuance which was announced last Friday.

Hong Leong Investment Bank Research (HLIB Research) analyst Sheikh Abdullah wrote in his note today that a liquidity boost is expected as a result of the bonus issue.

On the other hand, he viewed the bond issuance in a positive light as it will result in interest savings in the near term whilst enabling Top Glove to lock in a lower financing rate and restructure its debt composition to a longer tenure.

"The overall impact to net gearing is expected to be neutral as the group is largely extending its borrowings schedule by converting a large portion of its current borrowings into a five-year tenured bond.

"The group's overall borrowing costs ranges from 2.5%-3.2% per annum. It is anticipated that bonds yield be lower than the group's existing borrowing costs as it has an equity feature," he said.

Meanwhile, MIDF Amanah Investment Bank Bhd Research's Noor Athila Mohd Razali said the earnings per share (EPS) will be halved post-bonus issue due to the increase in shares outstanding.

"Additionally, despite the annual interest savings from the issuance of bonds, we are neutral on these two exercises as there will be an additional dilution in earnings if we assume full conversion of the exchangeable bonds to 187.6 million of Top Glove shares," she wrote in her research note today.

Athila added that the EPS will be reduced by a further 7% due to the conversion of bonds to shares.

Both HLIB Research and MIDF Research maintained their hold and neutral call on Top Glove's stock respectively.

HLIB Research kept its target price at RM9.95, while MIDF Research increased it to RM9.46, from RM9.19 previously, after considering post-earnings revision and incorporating fully-diluted shares into its earnings assumption.

On Friday, Top Glove announced that it will be undertaking a proposed one-for-one bonus issue of up to 1.28 billion new shares and a proposed issuance of guaranteed exchangeable bonds of up to US$300 million.

Upon completion of the bonus issue, total shares outstanding will be up to 2.56 billion shares. The purpose of the bond issuance is to raise funds mainly to repay Top Glove's bank borrowings.

At 11.27am, Top Glove rose 1.8% or 18 sen to RM10.18 with 1.22 million shares done.