Top Glove Corp Bhd
(April 21, RM5.45)
Maintain hold with an unchanged target price (TP) of RM5.42: In a filing with Bursa Malaysia, Top Glove Corp Bhd has announced that its wholly-owned subsidiary, Top Glove Properties Sdn Bhd, has offered to acquire a piece of commercial land from Century Total Logistic Sdn Bhd, a wholly-owned subsidiary of Century Logistics Holdings Bhd, for RM20.255 million, excluding 6% goods and services tax (GST).

The land is located in Mukim Bukit Raja, Petaling, Selangor, and measures 6,070.3 sq m, currently free from all encumbrances and with vacant possession. At the time of announcement, the sale and purchase agreement (SPA) has yet to be signed. If this acquisition is fully funded by cash, net debt-to-equity ratio will increase marginally from 1.5% to 2.8%.

Although the purpose of the land acquisition is unclear at this juncture, we are slightly positive on the news in view of the company’s expansion mode. We think the price of RM20.255 million for commercial land in Mukim Bukit Raja is slightly above the market price.

Based on Century Logistics’ 2014 annual report, the land was last valued at RM9.212 million in 2013, which translates into approximately RM141 per sq ft (psf) compared with the proposed acquisition at approximately RM310 psf.

However, management reiterated that the price is deemed fair after taking into consideration the prevailing market value at the time of acquisition, together with its strategic location. Our forecasts are unchanged pending more details upon signing of the SPA.

We maintain our TP at RM5.42 and “hold” recommendation on the equity. Our valuation is pegged to a multiple of 15.4 times calendar year 2016 earnings per share based on a three-year historical average price-earnings ratio. — Hong Leong IB Research, April 21

This article first appeared in The Edge Financial Daily, on April 22, 2015.