Top Glove expected to see earnings dilution, post-bonus and bonds issue

KUCHING: Top Glove Corporation Bhd (Top Glove) is expected to see some dilution in its earnings, post-bonus and bonds issue, analysts say.

Of note, Top Glove announced last Friday that it has proposed to undertake a one-for-one bonus issue. The bonus issue which is expected to be completed by the second half of 2018 (2H18), will increase Top Glove’s current share base to 2,560.6 million from 1,280.3 million currently.

“The bonus issue which is more akin to a share split; is intended to improve the liquidity of Top Glove’s share and increase the attractiveness of the share to potential investors intending to participate in the growth of the company.

“It also allows existing shareholders to increase the number of share ownership while retaining the percentage of equity held,” the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said in its report.

In addition to the one-for-one bonus issue, Top Glove has also announced a proposed bonds issuance of up to US$300 million or RM1,159.3 million – based on a RM3.8643 per US dollar rate.

“The bonds which are to be issued for the purpose of repaying Top Glove’s current borrowings will be a five-years exchangeable bonds which can be redeemed for Top Glove’s share in the future,” it added.

It noted that the bond issuance would lead to an interest savings of about RM22.6 million annually for Top Glove.

“That said, should the bonds be fully-converted to Top Glove shares, the number of Top Glove shares will increase by 187.6 million to 2,748 million postfull redemption of bonds and bonus issue. The proposed bonus issuance is also expected to be completed by 2H18,” MIDF Research added.

The research opined, “We note that the earnings per share (EPS) will be reduced by half post-bonus issue due to the increase in shares outstanding.