Research house continues to ‘like’ Top Glove despite possible charges

It was reported that the ministry has opened 19 investigation papers on Top Glove for alleged offences under the Workers’ Minimum Standards of Housing and Amenities Act 1990 (Act 446). — Reuters pic

KUALA LUMPUR, Dec 2 — CGS-CIMB continues to “like” Top Glove Corporation Bhd despite news of possible charges.

This is because the glove maker is the key beneficiary of higher glove demand due to the Covid-19 pandemic, given its position as the world’s largest glove maker, asserts the research firm.

In the meantime, it is maintaining earnings per share (EPS) projections for Top Glove Corporation Bhd while awaiting further updates from the ongoing investigation.

In a note today, CGS-CIMB also maintained a “hold” call on Top Glove with a target price of RM10.

“At this juncture, we are unable to ascertain the impact of the Ministry of Human Resources’ charges (RM50,000 per offence) on Top Glove.

“This is pending further details such as number and type of charges to be filed against Top Glove. Assuming that each worker accommodation (we estimate that Top Glove has a total of 300 worker accommodations) is hit by one charge, Top Glove will have to pay fines up to RM15 million,” it noted.

It was reported that the ministry has opened 19 investigation papers on Top Glove for alleged offences under the Workers’ Minimum Standards of Housing and Amenities Act 1990 (Act 446).

“We understand that the findings indicate that Top Glove did not apply for accommodation certificates from the director-general of the Department of Labour of Peninsular Malaysia as required under Act 446, and that its accommodations are cramped, uncomfortable, have poor ventilation, and lacked rest and kitchen areas,” CGS-CIMB added.

Similarly, AmBank Research is not making any changes to its earnings forecasts at this juncture.

“However, the latest development could potentially raise the perceived risk premium to Top Glove, hence reducing our price earnings ratio (PER) valuation to 25 times from 28 times.

“With the 25 times PER, we arrive at a lower fair value of RM7.03 per share from RM7.88 previously based on calender year 2022 EPS forecast,” it said.

AmBank Research also maintains a hold recommendation on Top Glove.

At 11am, the company’s shares continued to drop, losing 11 sen to RM6.68 with more than 26 million shares traded.

It was among top heavyweights dragging the FBM KLCI lower. — Bernama

Source: Malay Mail