HONG KONG (Oct 14): CGS-CIMB Research is neutral on Top Glove Corp Bhd's Hong Kong listing plan.

According to the research house’s analyst Walter Aw in a note, assuming that Top Glove is aiming to raise up to US$1 billion-US$2 billion (RM4.1 billion-RM8.2 billion) from a primary Hong Kong listing, there could potentially be a 5.3% to 10% dilution of its earnings per share (EPS) for the financial year ending Aug 31, 2021 (FY21) to FY23.

This is assuming that: Top Glove will issue 460 million to 910 million new shares at RM9.09 per share; no interest income from the initial public offering (IPO) proceeds raised; and the cash is not used for any merger and acquisition (M&A) exercises.

Top Glove told the bourse exchange on Monday it is evaluating a dual primary listing on the Hong Kong Stock Exchange (HKEX).

“The proposed HKEX listing is still at a preliminary stage and the structure of the proposed HKEX listing has not been finalised,” said Top Glove.

While details remained scarce, Reuters cited sources indicating that Top Glove is aiming to raise up to US$1 billion to US$2 billion from the listing.

Walter Aw is of the view that funds raised from the potential primary Hong Kong listing will mainly be utilised for Top Glove's future capacity expansion plans or potential M&A exercises.

To recap, Top Glove recently announced that it had earmarked up to RM10 billion worth of capex over the next five years. This includes plans to raise its total glove production capacity by another 100 billion pieces annually (currently 85.5 billion pieces per annum) as well as investments in other key areas such as automation, upgrades of workers’ facilities and acquisition of land banks for future expansion.

Walter Aw reiterated his "add" call for Top Glove with a target price of RM10.

“We continue to like Top Glove as it is a key beneficiary of higher glove demand owing to Covid-19 given its position as the world’s largest glove maker,” he added.

Top Glove rose 13 sen or 1.43% to RM9.22 in morning trade today, bringing its market capitalisation to RM74.01 billion.