Good going for Top Glove’s special dividend
We revise financial year 2020’s (FY21) dividend per share (DPS) higher based on the newly forecasted dividend payout of 70per cent against our projected earnings. HLIB Research
KUCHING: Analysts laud Top Glove Corporation Bhd ( Top Glove) for committing to a 20 per cent special dividend to reward its shareholders, in consideration of its good profit performance and strong cash flow.
The world’s biggest glove maker in a statement said this was in addition to its existing dividend policy of a 50 per cent dividend payout ratio on profit after tax and minority interests (PATAMI), for the second quarter of financial year 2021 (2Q21) to 4Q21 ending Aug 31, 2021.
Both research teams with Hong Leong Investment Bank Bhd (HLIB Research) and MIDF Amanah Investment Bank Bhd (MIDF Research) were positive on this announcement as this should help offer some support amid recent share price weakness and also reward shareholders.
“We revise financial year 2020’s (FY21) dividend per share (DPS) higher based on the newly forecasted dividend payout of 70per cent against our projected earnings,” HLIB Research said in its update. “Note that DPS for 1QFY21 of 16.5 sen has already been paid out.
“We reflect in the special dividend announcement of additional 20 per cent into our model, translating FY21 payout ratio to an effective 67 per cent.
“We maintain our assumption of 50 per cent dividend payout for FY22-23 pending further clarification.”
Separately, MIDF Research believe that Top Glove will still be able to fulfil its capital requirements even with the higher payout ratio considering its improving operating cash flow.
“We increase our DPS assumption to 69.0sen from 55.0sen previously. This translates into a dividend yield of 12.5 per cent for FY21,” it said in separate note. “That said, we maintain our FY22 payout assumption of 50 per cent and DPS of 22 sen, which implies a decent yield of four per cent.”
“We notice that sentiment for the glove companies has turned negative, accompanied by the flurry of news revolving Covid19 vaccines but channel checks reveal that demand for gloves remain strong with positive momentum for average selling prices.
“Delivery time for nitrile gloves are expected to be more than one year. All things considered, we believe that Top Glove is on track to deliver record results in FY21E.”
Meanwhile, Top Glove’s employee welfare remain under scrutiny and time is required to show substantial improvement. MIDF Research acknowledged that considerations on environment, social and governance (ESG) weigh higher in sustainable investing.
“The past issues Top Glove encountered had somewhat dampened some of its ESG aspects and we opine that the company may need some time to rectify them,” it continued.
“Among others, the company has committed to improving its employees’ accommodation by setting aside budget to purchase and/or build better housing for them.”