Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on October 25, 2021 - October 31, 2021

IN a span of five months, Top Glove Corp Bhd bought back its own shares for about RM1.42 billion after the share price hit a record high and while cash coffers were expanding fast as it was making supernormal profit.

The aggressive share buyback was jaw-dropping, given the quantum spent. Some veteran investors believe this could well be the biggest amount ever spent by a single company on share buyback in Malaysia’s corporate history.

According to Bursa Malaysia filings, Top Glove bought back some 200.17 million shares between Oct 9, 2020, and Feb 22, 2021, in the price range of RM5.78 to RM8.01 apiece.

This was about more than eight months ago when glove stocks were the sweet darlings on Bursa Malaysia. The contrast between sentiment then and now on glove companies is glaring, after the global rollout of Covid-19 vaccines.

Because of the drastic change in market sentiment, Top Glove’s share price has more than halved from this year’s peak of RM7.05 on Feb 2.

The company paid RM1.42 billion for 200.17 million shares, which are now valued at RM552.5 million based on last Friday’s close of RM2.76.

As a result, Top Glove is currently sitting on paper losses of RM860 million. Putting things in perspective, the paper losses are more than double its pre-pandemic net profit of RM367.5 million for the financial year ended Aug 31, 2019 (FY2019). It posted record-high net profit of RM1.79 billion in FY2020 and RM7.87 billion in FY2021.

Like it or not, if Top Glove were to distribute that RM1.4 billion cash it spent on buying back its own shares, its shareholders would have received a payout of 17 sen per share.

Top Glove started buying back its shares in September last year shortly after its two-for-one bonus issue, when the share price was adjusted to RM8.37 on Sept 3 from RM26.08 on Sept 2. The manufacturer’s issued share capital was enlarged to 8.13 billion from 2.71 billion shares.

It spent RM244.81 million that month to acquire 31.55 million shares, and an additional RM109.93 million for 16.32 million shares the following month.

Around late October last year, investors were seen fleeing from glove counters, following news of progress in the development of a Covid-19 vaccine.  

Investors had begun to realise that the unprecedented strong global demand for rubber gloves that lifted average selling prices (ASPs) was unlikely to be a long-term phenomenon. Since then, Top Glove’s share price has gone south.

While issues of profit normalisation and declining ASPs were playing in the background, in mid-November last year, an Enhanced Movement Control Order (EMCO) was placed on its foreign workers’ dormitory in Meru, Klang, after more than 200 Covid-19 cases were reported there.

Top Glove confirmed that 28 of its factories in Meru were shut down because of a surge in cases.

As the news flow turned negative, pulling down its share price, Top Glove ramped up its buyback activities. Its record-high quarterly earnings also failed to lend support to the share price, even though the company was still the top pick of many analysts then.

Top Glove was not the only one that bought back shares, though. Its peers did so too but they were not as aggressive.

Among the big four public-listed rubber glove manufacturers, Top Glove spent the most in terms of share buybacks at RM1.42 billion, more than four times the combined amount of RM346.46 million spent by Supermax Corp Bhd (RM222.44 million), Hartalega Holdings Bhd (RM97.34 million) and Kossan Rubber Industries Bhd (26.68 million).

Hartalega paid an average of RM9.60 apiece for 10.15 million shares. Based on its closing price of RM6.15 last Friday, those shares are worth RM62.4 million, translating into a paper loss of RM34.9 million.

Supermax, which closed at RM2.03, spent a total of RM222.4 million, or an average of RM4.36 each, for 51.05 million shares, translating into a paper loss of RM118.7 million.

Kossan Rubber spent the least, at RM26.68 million — paying an average of RM4.27 apiece for 6.25 million shares. The counter closed at RM2.51 last Friday, translating into a loss of RM11 million.

 

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