KUALA LUMPUR (March 5): RHB Research Institute Sdn Bhd has maintained its “Buy” rating on Top Glove Corp Bhd at RM4.60 with a lower target price of RM5.80 (from RM6.75) after Top Glove announced on March 4 that it had listed exchangeable bonds (EBs) – principal amount: US$200 million – on Bursa Securities (under the exempt regime) and Singapore Exchange Trading.

In a note today, the research house said this is the firm’s maiden EB, and a stock borrow arrangement with Top Glove’s major shareholders was introduced in connection with this issuance.

According to the announcement, the stock borrow available only comprises 2% of Top Glove’s total shares.

RHB Research said during the initial period, there may be some downward impact on the share price due to regulated short-selling activities.

“The company expects this impact to be temporary,” it said.

“We have increased our Beta assumption in our DCF valuation to reflect short-term share price volatility due to the stock borrow arrangement,” it said.

RHB Research said its new target price values the stock at FY20F P/E of 23.9x, or 1.1SD above its mean valuation.

“We believe the premium valuation is justified due to the counter’s recent inclusion into FBM KLCI (effective 24 Dec 2018), as well as strong double-digit earnings growth for FY19F-20F.

“Key downside risks: industry overcapacity, currency movements, and volatile raw material prices,” it said.