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Challenging the Gloves valuation - Top Glove as example - felicity

Tan KW
Publish date: Fri, 05 Jun 2020, 11:21 AM
Tan KW
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Good.

Thursday, June 4, 2020 

 
This article is going to be hugely unpopular. But let me put it, I am a supporter of Malaysian gloves business, you can do a search on my write-ups. The recent events on increasing valuation for gloves not just by retail investors but analysts' recommendations really surprised me. Let me take the largest of the gloves maker - Top Glove which is the largest maker by far. I have no doubt that the demand-supply had gone out of whack. However, how is it that the valuation can be this high.

Two analysts put it at around RM20, another put it at RM23. Today, Top Glove's price is around RM15.60. That translates to RM52.6 billion, RM60.5 billion and RM41 billion valuation respectively. Numbers are just numbers. I am taking those numbers and try to present where it is based on that valuation and what are the risks by picking those prices, especially at RM23 and RM20.

Below are the most aggressive numbers based on a RM23 valuation. The analyst presented the numbers for the subsequent 3 years between 2020 to 2023 and went silent on numbers further down the road. It is obvious the next 2 years will be period where numbers are going to be very high - I do not dispute. I am thinking even at 2022/23 (PAT RM836.6 million), if the profits is going to double the numbers for the normal period of 2019/20 - that is a stretch.


However, let us just say I am going to be hugely bullish i.e. after the period 2022/23, it will still grow at 10% per year for the next 6 years. Based on the above situation, I have put up 3 situations i.e. at what average PE would the company be given their price of RM23, RM20 and RM15.60. The average PEs for 10 years would be very high indeed - 64x (at RM23), 55.5x (RM20) and 43.3x (RM15.60)

To go for a more humble situation, I would not challenge the numbers for the next 3 years but let us put the 2023/24 PAT at a more realistic number. Post 2023, the PAT will drop by 20% - even then its number would be 84% higher from its normal year i.e. 2019/20. Subsequently, the profit numbers would grow 5%. That translates to 80.51x PE for price of RM23, 70x PE (RM20) and even a very high 54.61x PE for its current price of RM15.60.


Even, at a price of RM10 (which is not something we can expect given it is now RM15.60, the average PE would have been 35x, given the scenario above. See below's table. That is still high.


Now, let's look at the economics of rubber gloves.

Remember, rubber gloves while at today's situation it is difficult to create enough supply to meet demand, however are we saying that the demand-supply will still be abnormal after COVID-19. In fact, with the creation of extra capacity at large quantities, it is possible that there could be oversupply situation by then i.e. 3 years after this pandemic started in Jan 20.

Rubber gloves business is not a monopolistic business, although there are situations where certain companies such as Top Glove, Kossan and Hartalega are the larger of the manufacturers. Are we saying that with COVID-19 assuming to be still around after this 2 years, there will not be ramp up of supplies by these guys who would act as check and balance of each other in terms of competition? What about the other players?

How long does it take to create new factories and new lines? More than a year?

I cannot see the economics of it as this business is not in a situation where barriers of entry is very high. No player has huge advantage over the other except for some extra efficiencies and economies of scale. Given the huge margins today, many new companies will not even bother with scale. There could even be new entrants - have any of the analysts thought of this given it is so lucrative?

There are just too much unknowns and many of these are not put into considerations. For many businesses, by putting a overly high price, they run into risks of being shun when situation becomes normal. Typically for this business, it is about long term relationships. I understand that some of them had created a new idea by putting a percentage of their supplies on the spot market (meaning let it be done through bids). However, business like this is not done in such manner. It is not our typical commodities.

 

 

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4 people like this. Showing 50 of 207 comments

CharlesT

i used to think u are one of the most knowledgeable guy in i3 until 3 days ago...

u r just an ordinary oldman

2020-06-08 11:57

CharlesT

who eat, shit, fuck(i m not sure on that), cry, lie, talk rubbish etc

yes, philip u are just an ordinary human being

2020-06-08 11:59

CharlesT

If u enjoy being K.O again n again here i will alway welcome u here

I think u hardly have this kind of experience in i3 right?

It's kind of SM feel i knew..the painful the merrier

2020-06-08 12:05

Philip ( buy what you understand)

hey, can stick to maths? and show me how you derive calculation of supermax 700 million to 1 billion in earnings this year?

Please don't just show me how many retailers and fans you have, I have had enough of the JJPTR and swisscash stories of success.

I'm sure you made millions investing in bitcoin too.

2020-06-08 12:06

Philip ( buy what you understand)

This kind of story I heard from MLM all the time.

>>>>>>

Posted by CharlesT > Jun 8, 2020 11:55 AM | Report Abuse

fYI daily traded value of supermax is few hundred millions of RM...and its going higher n higher

what tells u...only retailers are buying and they are all richer than u ah..

2020-06-08 12:07

CharlesT

https://www.facebook.com/pages/category/Community/StBarnabas-Home-Klang-2081551321870076/

I found this fm FB...but no bank details...will call them to find out tmr

philip hope u can donate for charity after yr big won in Topglove...

I paper loss 20% on mnrb N lose my bakuteh bet to you i also do my best to donate to them n others...small kid is doing his little part

2020-06-08 12:10

CharlesT

Posted by Philip ( buy what you understand) > Jun 8, 2020 12:06 PM | Report Abuse

hey, can stick to maths? and show me how you derive calculation of supermax 700 million to 1 billion in earnings this year?

Please don't just show me how many retailers and fans you have, I have had enough of the JJPTR and swisscash stories of success.

I'm sure you made millions investing in bitcoin too.

U read Maybank n other Inv bank's report loh..any doubts u whack them lah

all the projections are here

2020-06-08 12:11

CharlesT

Philip ah philip when can u grow up leh...an old kid

2020-06-08 12:12

CharlesT

but not so cute leh...frankly speaking

2020-06-08 12:12

CharlesT

what now talk abt bitcoin ah? walau a...a bad taichi move leh

2020-06-08 12:13

CharlesT

bitcoin..mlm...what do u try to imply? that small kid like me love all this ah?

2020-06-08 12:15

CharlesT

just bcoz i buy n hold supermax now means that I invest in Bitcoin n MLM?

Is this what u tried to imply?

2020-06-08 12:16

CharlesT

Is this the best u can defend yrself n counter attack me ah?

My God.......

2020-06-08 12:17

CharlesT

Philip pls lah.....pls...

2020-06-08 12:18

CharlesT

Dont go so low.....

2020-06-08 12:18

CharlesT

dont go lower than Calvin...

i hv to express my worry now...seeing yr posts here...

the level of intellectual seems turning fm bad to worse

2020-06-08 12:22

CharlesT

take a deep breath now

mayb go for a short trip to Kuantan (now interstate travel is allowed).

feel the power of the natural seeing the sea...realise how tiny we are in this world...

hopefully u will see a new prospect in yr life after this

2020-06-08 12:24

CharlesT

Amen.

2020-06-08 12:42

Philipmasterbator

Post removed.Why?

2020-06-08 12:51

Philip ( buy what you understand)

Right.... Oil price at 43 now. Let's see who is right, PCHEM that can earn 500 million in a quarter going back to it's 1 billion earnings every quarter?

Or supermax that has always done 100m per year, can suddenly do 700 million in spot sales every year.

Good luck boys, see you next year.

2020-06-08 22:39

Philip ( buy what you understand)

And as none of you here can calculate why supermax can earn 700 million every year onwards?I think I prefer to use Felicity calculation compared to yours.

Good luck spectacular speculators!

2020-06-08 22:41

CharlesT

nobody ever say Supermax can post more than Rm700M every year onwards for the next 10 years or forever or till yr last breath ...

I only say they will post fantastic results at least for the next 2 years, basing on the info i knew.

Nobody can tell how long will Covid 19 last nobody can tell when or whether we can find the vaccine nobody can tell whether Philip will still be alive 10 years later (infact cant even tell whether Philip will still be ard 10 weeks later)...I guess only God knows...

one thing i wonder, why u always use 10 years as yr benchmark leh?

Every shares u bought u must hold at least for 10 years ah? 11 years can not meh?

Do u know that if u hold yr 2M shares of topglove one year longer (11 years), the profit u make will be more than double than the profit u make for holding 10 years?

Maybe after this very painful experience u hv to change yr benchmark fm 10 years to 11 years....

So if anyone wish to have healthy discussion on any issues with U in I3 they are now have to show u their past 11 years result before they can do so. Everybody pls take note.

Lastly, i will post Supermax's next 6 to 8 Q results here to keep u posted.

The next Q result will be annouced in Aug. Stay tune n sleep well.

2020-06-09 06:50

CharlesT

Philip ( buy what you understand) And as none of you here can calculate why supermax can earn 700 million every year onwards?I think I prefer to use Felicity calculation compared to yours.

Good luck spectacular speculators!
08/06/2020 10:41 PM

To go for a more humble situation, I would not challenge the numbers for the next 3 years but let us put the 2023/24 PAT at a more realistic number. Post 2023, the PAT will drop by 20% - even then its number would be 84% higher from its normal year i.e. 2019/20. Subsequently, the profit numbers would grow 5%. That translates to 80.51x PE for price of RM23, 70x PE (RM20) and even a very high 54.61x PE for its current price of RM15.60.



Do u know that felicity didnt challenge the numbers of the investment banks for the next 3 years? Meaning to say he agreed with their projection for next 3 years. He only express his doubts on their 2023/2024 projection.

What's going wrong with u Philip? Seems like the constant sleepless night after u sold all topglove few weeks ago has some very negative impacts on yr brain...i must say i m kind of concern abt u....

2020-06-09 07:07

Philipmasterbator

Post removed.Why?

2020-06-09 08:41

Philip ( buy what you understand)

What do you mean no one ever say,

YOU are buying at current price supermax for 12.5 billion at RM8.80.

previous historical PE is RM100 million per year. Now that the valuation has jumped to PE120 level, and you say still cheap can go to RM12-14, that is EXACTLY what you are saying, for supermax to be cheap at MR8.80, the valuation is supermax can give you discounted cash flow of RM700 million per year. That is exactly what is happening.

If your current shop rental to tenant is 6k a month, and the shop value is 1 million. Suddenly if you want to pay 10 million for the shop, you should be expected 60K rental from Mcdonalds, otherwise why pay 10 million?.... Basic maths.

So why are you paying 12 billion for supermax? Aren't you expecting them to do double the business to 200 million of earnings every quarter?

Simple logic simple maths.

Do you think you can get 60K rental for your shoplot that you are renting for 6K? if you can only get 60K rental for 2 years... you really want to pay 10 million for the shoplot meh? 60K a month for 10 years then make it worthwhile to pay 10 million for the shoplot mah.

Speculation? or you don't know the rules of the game?

>>>>>>>>>

Posted by CharlesT > Jun 9, 2020 6:50 AM | Report Abuse

nobody ever say Supermax can post more than Rm700M every year onwards for the next 10 years or forever or till yr last breath ...

I only say they will post fantastic results at least for the next 2 years, basing on the info i knew.

2020-06-09 14:07

stockraider

Precisely loh....!!

Thats why u should buy undervalue insas can justify valuation compare with overvalue compare to overvaue QL mah....!!

Posted by Philip ( buy what you understand) > Jun 9, 2020 2:07 PM | Report Abuse

What do you mean no one ever say,

YOU are buying at current price supermax for 12.5 billion at RM8.80.

previous historical PE is RM100 million per year. Now that the valuation has jumped to PE120 level, and you say still cheap can go to RM12-14, that is EXACTLY what you are saying, for supermax to be cheap at MR8.80, the valuation is supermax can give you discounted cash flow of RM700 million per year. That is exactly what is happening.

If your current shop rental to tenant is 6k a month, and the shop value is 1 million. Suddenly if you want to pay 10 million for the shop, you should be expected 60K rental from Mcdonalds, otherwise why pay 10 million?.... Basic maths.

So why are you paying 12 billion for supermax? Aren't you expecting them to do double the business to 200 million of earnings every quarter?

Simple logic simple maths.

Do you think you can get 60K rental for your shoplot that you are renting for 6K? if you can only get 60K rental for 2 years... you really want to pay 10 million for the shoplot meh? 60K a month for 10 years then make it worthwhile to pay 10 million for the shoplot mah.

Speculation? or you don't know the rules of the game?

>>>>>>>>>

Posted by CharlesT > Jun 9, 2020 6:50 AM | Report Abuse

nobody ever say Supermax can post more than Rm700M every year onwards for the next 10 years or forever or till yr last breath ...

I only say they will post fantastic results at least for the next 2 years, basing on the info i knew.

2020-06-09 14:13

CharlesT

Mkt is giving this kind of valuation to glove now...what can u do?

just like yr super high PE QL....lol

2020-06-09 15:42

Philip ( buy what you understand)

QL valuation is not a 1 month 2 month thing, already high for multiple years... Unlike glove stocks.

As for QL valuation, you can see them start from 0 family Mart to 200+ family Mart in a few years and plans to challenge 7-11 2000+ stores with family Mart 1000+ stores target. This is a 10 year VERY achievable
goal.

Your gloves got 10 year achievable target of 700 million a year?

>>>>>>>>

Posted by CharlesT > Jun 9, 2020 3:42 PM | Report Abuse

Mkt is giving this kind of valuation to glove now...what can u do?

just like yr super high PE QL....lol

2020-06-09 16:14

Philip ( buy what you understand)

Not market. Speculators and retail amateurs like you.

This will not end well. Your anger and rage when others pointing this simple fact out to you is proof enough that you know it's overvalued but you are still sticking to the game.

2020-06-09 16:15

CharlesT

osted by Philip ( buy what you understand) > Jun 9, 2020 4:15 PM | Report Abuse

Not market. Speculators and retail amateurs like you.

This will not end well. Your anger and rage when others pointing this simple fact out to you is proof enough that you know it's overvalued but you are still sticking to the game.


My anger n rage? lol

2020-06-09 16:19

CharlesT

wah I was the one who was so angry till making lots of lies n cursing others to lose like hell n missing fm I3 ah

2020-06-09 16:21

CharlesT

Btw today a lot of speculators or retail amateur or gamblers or whatever push up topglove by another rm0.62 or another rm1.2m OL...

2020-06-09 17:30

CharlesT

Go to read more of yr investment theory book n ask why why why like that one.....

2020-06-09 17:32

Philip ( buy what you understand)

Ok very soon topglove can buy 2 public banks. Congratulations to you kid. Please sailang and buy more, your new tp is rm54 right? Go go go!

2020-06-09 17:44

stockraider

U see this Philip such a sore loser loh....!!

He always want to win & very kiasu mah...!!

He expect after he bought the share, the price must go up like gkent & after selling it must come down like topgloves mah...!!

But market has its own life mah...if u sold topgloves at Rm 8, he should be happy even it shoot up to Rm 20.00 mah...!!

This philip already make his monies mah....!!

But Philip is sore loser...he curse here & there, bcos topglove do not fall but go up & up to his dismay after he sold loh....!!

2020-06-09 18:44

CharlesT

Keep lying keep on twist n turn..

Really an old asshole

2020-06-09 19:07

Sslee

Haha stockraider
Philip is not a sore loser but a sore winner.
Imagine winning still sore like this what will happen when he lose like KYY in Dayang?

2020-06-09 19:07

CharlesT

Kyy is 100 times better than this old asshole...though kyy is an old asshole too...lol

2020-06-09 19:07

CharlesT

I really shocked to see philip's real face now

2020-06-09 19:08

Philip ( buy what you understand)

I don't get you. You want good news I give you, you c.urse me. I say don't buy overvalued, you also curse me.

So what you want me to do?

Don't worry, the one thing I will never do is make fun of you when the share price for gloves revert to mean.

That is time when warnings and advice is too late, and all we can do is give you some words of comfort.


>>>>>>>

Posted by CharlesT > Jun 9, 2020 7:08 PM | Report Abuse

I really shocked to see philip's real face now

2020-06-09 19:12

CharlesT

Lol

2020-06-09 19:13

stockraider

He lose on gkent mah...!!

Posted by Sslee > Jun 9, 2020 7:07 PM | Report Abuse

Haha stockraider
Philip is not a sore loser but a sore winner.
Imagine winning still sore like this what will happen when he lose like KYY in Dayang?

2020-06-09 19:13

CharlesT

Stop watching topglove price till 2021....

2020-06-09 19:15

CharlesT

Can sleep better...

2020-06-09 19:16

Philip ( buy what you understand)

Here's how you do it.

Put up 50k of your own money. Then borrow about 50k from friends and family.
Then put it in trading account and get maybank approval to margin of 100k.

Now buy 200k of supermax.

Then, you will notice you have 200k of contra t+2 in your account.

Go ahead and buy more on contra.

You will now open 400k of supermax.

After it goes up by 20%, you would have 480k. Now you can close your position and turn 100k into 180k in a few days. Now repeat again:
180k into 360k into 720k contra, make 20% on that in T+2.

Rinse and repeat until you become a millionaire.

2020-06-10 16:00

Philip ( buy what you understand)

Are you a millionaire yet? Congratulations.

2020-06-11 08:31

tomdickharry

Murali unusually quiet today after major blood bath of TG & Spermax, wakakaka

2020-06-15 21:24

CharlesT

This is one of the classic

2021-12-11 10:24

stockraider

Thats how Uncle Philip nearly went bankrupt in Aokam loh!

Lesson not Learn loh!


Posted by Philip ( buy what you understand) > Jun 10, 2020 4:00 PM | Report Abuse

Here's how you do it.

Put up 50k of your own money. Then borrow about 50k from friends and family.
Then put it in trading account and get maybank approval to margin of 100k.

Now buy 200k of supermax.

Then, you will notice you have 200k of contra t+2 in your account.

Go ahead and buy more on contra.

You will now open 400k of supermax.

After it goes up by 20%, you would have 480k. Now you can close your position and turn 100k into 180k in a few days. Now repeat again:
180k into 360k into 720k contra, make 20% on that in T+2.

Rinse and repeat until you become a millionaire.

2021-12-11 10:26

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