Top Glove top loser stock following litigation
KUCHING: Top Glove Corporation Bhd has emerged the top loser on Bursa Malaysia, with its share price down 24.30 per cent at closing yesterday, following its legal proceedings against Adventa Capital Pte Ltd.
At closing, Top Glove shares declined RM2.94 to RM9.16, with 49.281 million shares transacted. The counter hit limit down earlier after falling RM3.63 or 30 per cent to RM8.47.
Research firms are still uncertain over the impact towards Top Glove following its legal action against the ex-owner of Aspion Sdn Bhd (Aspion) for RM714.9 million.
In an announcement to Bursa Malaysia, wholly-owned Top Care Sdn Bhd has taken legal proceedings against Adventa Capital Pte Ltd as well as Low Chin Guan (previous owner of Aspion), Wong Chin Toh and ACPL Sdn Bhd (ACPL) vide a writ.
Based on Affin Hwang Investment Bank Bhd’s (AffinHwang Capital) understanding, the litigation was initiated by Top Glove believing that they had overpaid for Aspion by around RM715 million due to fraudulent misrepresentations by the vendor, Adventa Capital.
In the writ, Top Glove and Top Care are claiming for an amount of not less than RM714.9 million arising from a conspiracy to defraud Top Care and Top Glove, and fraudulent misrepresentations made by Low and Wong in relation to the acquisition of Aspion.
Top Glove and Top Care are seeking for a Mareva injunction to restrain Adventa Capital from disposing of its assets in Malaysia up to the value of RM714.9 million pending disposal of the arbitration at the Singapore International Arbitration Centre of which hearing is fixed on July 13, 2018.
“Limited details were provided as the case is undergoing arbitration. Top Glove has reassured us that Aspion is still a sound business nevertheless,” it said in a review yesterday.
“Aspion’s profit contribution (ex-finance cost) to Top Glove was around RM7 million in 3QFY18. Top Glove could transfer Aspion surgical glove technology to its existing plant to improve its margin and recoup some of the cost.”
Kenanga Investment Bank Bhd ( Kenanga Research) said the latest news came as a surprise and raises uncertainty over the future operations and earnings contribution from Aspionm, specifically citing risk of a derating amidst execution risk at Aspion.
“We do not have sufficient details to quantify adverse impact to earnings in relation to uncertainty over the profit guarantee attached to Aspion,” it said in a separate report.
“For illustrative purposes, based on our- back- of- the envelope calculation, assuming we strip out the profit guarantee and assuming normal profits generated from Aspion, our FY19E earnings could be lowered by 12 per cent and our target price lowered to RM8.25 from RM9.40.
“Meanwhile, assuming Top Glove is unable to recoup the claims made, an impairment charge of RM714.9 million (assuming worst case) will erode Top Glove’s book value by 31 per cent. However, we are leaving our FY18E and FY19E earnings and target price of RM9.40 unchanged pending further clarifications from management.”
Looking ahead, it saw that Top Glove was in the process of constructing 2 new manufacturing facilities namely, Factory 31 (operational by July 2018) and Factory 32 (operational by early 2019), which upon completion will boost the Group’s total number of production lines by an additional 74 lines and production capacity by 7.4 billion gloves per annum to 64.9 billion.
Preparations for Top Glove’s condom manufacturing facility have also commenced and expected to be operational by June 2018.