Top Glove target price raised after deal to buy Aspion

But number of analysts recommending ‘buy’ falls to seven

PETALING JAYA: Most brokerages have raised their target price for Top Glove Corp Bhd on expectations of higher earnings upon the completion of deal to buy surgical gloves maker Aspion Sdn Bhd.

There are a handful, however, that have downgraded their call on the counter.

According to a Bloomberg poll of 20 analysts, the 12-month mean target price for Top Glove now stood at RM8.64, compared with RM7.45 last Friday.

However, the number of analysts recommending “buy” on Top Glove had now fallen to seven, compared with nine previously, while 10 now rated the counter as “neutral”, compared with eight previously. The number of “sell” calls remained unchanged at three.

Top Glove’s shares fell nine sen yesterday to close at RM8.91.

Affin Hwang Capital Research, for one, said it expected Top Glove to derive value from the attractively priced deal to buy Aspion.

The brokerage upgraded its target price fo Top Glove to RM10.10 from RM8.50, and maintained its “buy” rating on the counter, as it incorporated the Aspion acquisition into its numbers, post a recent analyst briefing hosted by Top Glove.

“We believe shareholders are likely to vote in favour of the deal, as the deal will not only be earnings and value accretive to existing shareholders, but can also help drive the group’s longer-term earnings growth as they expand into new business segments,” Affin Hwang Capital said in its report yesterday.

The brokerage raised its earnings forecast for Top Glove by 2.6%-16.2% for financial years (FY) ending Aug 31, 2018, to 2020 to incorporate contribution from Aspion, which was expected to be completed by April 2018.

Meanwhile, Public Investment Bank (PIB) said Top Glove’s acquisition of Aspion – the second-largest surgical gloves maker in the world, with 17% global market share – would further strengthen its position as the largest surgical glove maker globally.

“We are positive on this acquisition as Top Glove can immediately widen its surgical gloves portfolio to include specialised surgical gloves, thereby moving up the value chain. Both companies could reap substantial synergies through cross-leveraging their respective expertise in examination and surgical gloves,” PIB said.

The brokerage adjusted its earnings estimates upward for Top Glove by 2%-18% for FY2018 to FY2020 to account for the potential contribution from Aspion based on the clearer guidance from management, and rolled forward its valuation matrix to FY2019.

As a result, PIB revised up its discounted cash flow-based target price for Top Glove to RM8.75, from RM7.86 previously. It, however, downgraded the counter to “neutral” from “outperform”, citing limited upside to its target price.

“Share price has surged by 33% since our upgrade on Nov 27, 2017, and we believe market has already priced in the positive nearterm developments,” it explained.

TA Research, on the other hand, said it continued to expect Top Glove’s growth momentum to sustain.

“This would be underpinned by the group’s expansion plans and robust demand for rubber gloves supplemented by the prevailing shortage of vinyl gloves in China,” the brokerage said.

TA Research said it was “positive” on Top Glove’s acquisition of Aspion. ,

Its target price for Top Glove had been revised upwards to RM9.35 from RM7 previously, based on a revised 25 times 2018 earnings from 20 times previously.

Despite higher target price, TA Research maintained “sell” on Top Glove due to its current pricey valuation.