katsul51, Bizfuneng, signn, thank you for your comments.

Bizfuneng, foreign institutional investors buying certain shares doesn't affect (for the most part) the business of the companies they are buying shares of, so from purely investment point of view it makes no major difference. However, in general higher institutional investor shareholding base means less volatility in the stock price, as compared to higher retail investor shareholding base, so this might be one positive.

Seec0006, Albukhary, katsul51, pjseow, Brutus, abang_misai, bpsiah, Anthem2, thank you for your comments and kind words.

pjseow, yes, this was my understanding as well, based on management's briefings. Any shipments to the US were originating only from factories outside of Malaysia.

abang_misai, I believe Supermax will be a major beneficiary, too. They have been increasing their capacity the most aggressively (only after Top Glove themselves), so they may be able to handle some orders that might have previously been put with Top Glove.

Anthem2, yes, I too believe this goes well beyond anything Top Glove could realistically do. It doesn't seem like the matter is in their hands to resolve, based on all the publicly available data.

DickyMe, so what you are saying is that a decision of an independent body, to which nobody has access or can predict, should be factored in any business decision or to any investment decision? If that is the case, then I guess any business decision ever taken is equally probable to potentially be wrong and therefore no one should ever taken any risk in any business endeavor.

Is my understanding of your logic correct?

"DickyMe Meanwhile, where is Ben Tan?

He and is "actuarial" calculation seems did not work out against the "non-tangible" issues."

I am here. What "actuarial" calculations exactly are you referring to? And what "non-tangible issues?"

DickyMe, that's not what the author is saying. On the contrary, he explains that there is always underlying logic behind the valuations, but different analysts may use different assumptions and may have different targets. So even based on the same set of evidence and facts, they may arrive at different valuations. With all of this - I completely agree with him.

But yet again, this is not what my post was about at all.

CynicalCyan, thank you for your comment.

I beg to differ. As you can see from my notes, a number of analysts might have cut their price target because they "roll over" their valuations to some seemingly random future dates. In other words, the re-rating downwards is precisely because of this stellar quarterly results - the great quarter has passed, so the presumption is that hereon after the company loses an enormous part of its present value (at least this is how I understand the "rolling over" effect).

Brutus, supersaiyan3, EatCoconutCanWin, gohkimhock, Stockisnotfun, thank you for your comments.

Brutus, out of the reports I've had access to so far, only Maybank's mentions the NBR plant.

Stockisnotfun, we aren't really discussing predicting the future here. We are rather discussing the validity of some of the assumptions given as justification by the analysts, as well as pondering over justifications that have seemingly not been provided.

treack, muk912, Gaussian, YC88, LaoTzeAhSir, Anthem2, observatory, ooi8888, CJkenho, bclassinvest, Mat Cendana, thank you for your comments.

I agree with observatory that one of the main reasons for these "TP cuts" is that the price targets need to be nearer to the actual market price, other than anything else, precisely because that promotes more active trading.

One thing that stands out of course is Maybank's position of course - from markedly bullish to very bearish within a very short span of time. Coincidentally, one of the ITM CWs that expired in end-Feb was issued by Maybank. It might be just a coincidence of course.

bpsiah, BeLikeBuffett, patrico8, LimitUp, thank you for your comments.

I just wanted to mention that not all reports are questionable. For instance, the reports of PublicInvest and HLIB make a lot of sense.

PublicInvest revise their FY21 earnings forecast upwards by 13%, and they adjust their price target slightly upwards (by about 4%).

HLIB just make minor balance sheet adjustments, and correspondingly adjust their price target by 8 sen upwards, to RM8.14.

This is the type of movement that is expected from self-respecting analysts.

LimitUp, DickyMe, probability, HrryPttr, pjseow, Hoho22, Stockhunter88, LaoTzeAhSir, thank you for your comments.

DickyMe, if you believe that a capital-intensive business such as glove manufacturing works as you describe it, your understanding of the business of disposable product manufacturing is cursory at best. Expansion plans, as well as future selling price projections, are based on demand evidence and expectations.

pjseow, yes, I expected that and I think this is where the HK listing plays a pivotal role. Capturing a bigger part of the increased market as early as possible might be vital and that's where Top Glove appears to be heading.

Thank you everyone for your kind comments.

@CJkenho, it would appear that certain CW issuing IBs are more "lenient" when it comes to letting the price take its own course, so I believe the upcoming ITM CWs won't be such a big issue.

@katsul51, there was a certain amount of short selling last year as well, yes, but it was incomparably smaller than what is happening since Jan 4. I believe the shorting limit is for all types of short selling together.

@tamp0i that's a great spreadsheet, thank you. Just a small note that sometimes when LWC buys shares, a few announcements are made, because of his related parties.

Thank you once again everyone for your comments.

@kayap1, those prepayments are deposits for future deliveries.

@observatory, I agree completely. I have been able to average down my positions on both Top Glove and Supermax quite substantially from a level at which I considered them at a minimum fair valued when I started entering.

@Picanto, just trying to sum up what you are saying - Supermax can just sit on its cash, not use it for anything, and just based on the interest, the company will be earning more than they were earning before COVID. That's even if they don't earn a single sen from any of their operations.

@LaoTzeAhSir, it's official data coming from Bursa right?

PeterPan1979, thank you for your comment.

CIMB release weekly reports, called "Strategy" that contain this data.

dawchok, KINGCOBRA, patrico8, Russel, Erudite, JuzzyOracle, thank you for your comments.

I hope the information I share helps you in taking important decisions. However, please do not use it as a single source of truth. Always do your own research and analysis as people's perspectives might differ.

CynicalCyan, for the first 9 months of 2020, 96.5% of Intco's revenue came from their PPE segment. Their expansion plans are practically entirely focused on this segment.

Thank you everyone for your comments. I am genuinely surprised that this article has gathered more interest than the previous one about Top Glove.

I will likely have the time to go through everything over the weekend.

see2seas, mikeazk, kayap1, thank you for your comments.

kayap1, yes, for last week, the top two net sells of local IBs are, expectedly, TG and Supermax:

TOPGLOV: -RM204.9 million
SUPERMX: -RM197.1 million

observatory, thank you for your comment.

Note that I am not claiming other markets lack manipulation or illogical price swings. My only point is that it is logical for companies that have experienced such wild swing from their perceived fair value to want to get listed on other exchanges, hoping they would fair better there.

CuriousGuy, Mrinvest0r, thank you for your comments.

CuriousGuy, in this case it is largely based on 3 factors coming together:

- Weak sentiment
- Last week's CW-related pressing resulting in margin calls
- Short selling pressure

HrryPttr, supersaiyan3, Jiang Ng, i3gambler, thank you for your comments.

supersaiyan3, unfortunately the recently observed drop in cases was not the result of vaccination, but of very strict containment measures imposed around the world. Most countries have been under different forms of lockdown since before Christmas. The problem countries are facing right now is that more contagious variant spread has already been confirmed, so easing the measures right now will be dangerous. On other hand it will be devastating to the economies to keep the measures as they are. It is likely that we will see at least 1 or 2 more openings and closings of the countries, especially in Europe and in the US, by the time enough people are vaccinated.

Cnlim, observatory, thank you for your comments.

observatory, thank you for your detailed note. Comments like yours are one of the reasons why I keep writing here.

Just to confirm, the PVs of the cash flows for the next 5 years are discounted in my calculations. What I've apparently missed doing is discounting the terminal value, i.e. I've used RM82,506.93 as the terminal value instead of the discounted value.

I am likely not as familiar with the model as you, but I agree that projecting profits for a longer period of time before adding terminal value would give us a more accurate estimate. At the same time the further into the future we go the more not-based-on-present-evidence assumptions we need to make. The 5-year projection is relatively safe and it gives us a total PV of the profits + cash on hand = RM23.41 billion. Most assumptions thereafter will be our own input anyhow.

Stockisnotfun, observatory, MF0001, OrlandoOilSemiconT, thank you for your comments.

observatory, I can definitely see where you are coming from and at a glance it definitely seems odd that the company would be buying back shares at higher price and then asking markets for capital at a lower price. I have been keeping tabs of the share buybacks since last year, and the VWAP is RM7.11 (simple average = RM7.05). Only a minuscule amount of shares have been bought at price RM8.

My opinion is that no one has expected that at the time the listing will get announced, the market price will be at the current level. There is no way for them to issue the notice other than at a price near to the market price as of the last day before the announcement has been made. As discussed, RM5.20 is not the actual price at IPO though. We will have to wait and see how the book building process goes. On management's skills, I think they were genuinely surprised and I believe TSLWC and the BoD buying shares with their own money is a way to prove sincerity of intentions. As described in my post above, the current price, or really any price over the last several months, makes little economic sense.

OrlandoOilSemiconT, you are raising a good point. If the underlying logic is that TG is falling today due to the HK listing, then logic is failing with regards to the other counters falling. In fact, funnily TG fell at the same rate as Harta, and to a much smaller extent than Supermax or the "second tier" glove companies.

observatory, as always thank you for your detailed comment.

First, note that the IPO price is not settled. Second, you are missing the bigger picture, although it must be harder to miss it as you are commenting under this particular post.

Objectively speaking, Top Glove doesn't need the IPO. The company will generate enough cash to finance its capex plans without it. If you read through the details of the proposed usage of the funds, you will realize that. As mentioned in my post above, we still don't have enough information on the IPO to draw final conclusions, but the entire exercise will most likely just boil down to a movement of funds. This is precisely why Top Glove is using cash on hand to pay bonus dividend and for share repurchases. I expect now that the listing exercise has been confirmed, SBB will become more aggressive, and it is possible that extra bonus dividend might be declared. In other words, from a purely business point of view, the two events will cancel out each other.

The reason why the IPO is happening is because the HKEX is approximately 5 times larger than Bursa+SGX taken together, and it gives the company direct exposure to US and China investors. Nothing more than that. Tapping into a larger market will make it easier to potentially raise fund in future, and of course it would mean that the company will trade closer to its fundamental value. The company has simply grown too big for Bursa (and SGX).

Comparison with Intco in this situation are unfair. Intco starts from the position of a company approximately 10 times smaller than Top Glove (as of last year). It has to be entirely on the aggressive if it wants to expand as much as it wants. That's not the case with Top Glove.

pjseow, thank you for your comment.

Yes, but I want to make any assumptions in a conservative manner, whenever possible.

CharlesT, yes, the above calculation is based on all the most conservative assumptions I could think of:

- Extra public listings coming in before 2QCY21 ends (i.e. they get a cut from the dividends)

- Dividend payout drops to 50% in FY22 even though the company will be very cash-rich

- Earnings are distributed evenly, even though Q4 is theoretically supposed to be weaker.

CharlesT, the above calculation is based on +1.5 billion shares for Q2, Q3, and Q4.

skyz, CharlesT, thank you for your comments.

CharlesT, yes it would depend on how you calculate the dividends. Here's an example calculation for CY21 (the above note was about FY21) dividend calculation:

- Assume even income distribution for the 4 quarters of the calendar year.
- Assume 70% dividend payout for FY21 and 50% dividend payout for FY22 (conservative).
- RM12.503 billion net profit for the year = RM3.12 billion per quarter.
- Q1 of the CY will be done at 8.2 billion shares; the next 3 quarters will be done at 9.7 billion shares.

Therefore:
- Q1 DPS = RM0.266
- Q2 DPS = RM0.225
- Q3 DPS = RM0.225
- Q4 DPS = RM0.161
TOTAL DPS for CY21 = RM0.877

Bamboo Green, honestlee, FCTITAN, spectre007, CharlesT, newbie4444, pjseow, winterwolf, thank you for your comments.

Bamboo Green, this appears to be the same video we discussed above. Price war can occur when there is oversupply in a market. For an oversupply to occur, there needs to be a very low entry barrier, like with the protective masks business for instance. That is not the case with gloves.

FCTITAN, unfortunately I don't know much about the station or about the commentators they had invited. It is possible that the commentator you mentioned was just unprepared and misinformed.

spectre007 and CharlesT, based on 70% dividend payout, the dividend for FY21 should come at around RM0.95 to RM1.05.

pjseow, yes, thanks for pointing out RHB's analysis. I am still unclear on some of the assumptions they have made.

winterwolf, from what I am hearing, the commentator has been grossly unprepared. Whether that has been done on purpose, or if that person was let loose on fear mongering exercise, unfortunately we cannot know.

Yong Ken, thank you for your comment.

All mentioned in the article is all I can say on this matter. I cannot discuss the market share price.

FCTITAN, thank you for the summary.

From what you say, it sounds very much like the pessimistic commentator has been largely unprepared for the conversation. Everything you are describing sounds like the person has at most a cursory idea about the business he is supposed to be discussing. Please refer to my article I linked to in my previous comment on the supply-demand dynamics matter.

On the "sell on high dividends" matter, what he says would be true if the stock was overvalued due to the excessively large dividend. For instance, in some cases during temporary abundance times, dividends (or more frequently earnings) will rise only temporarily, so using growth projections based on current year earnings/dividends would be incorrect. That is the reason why in such cases it is good to project earnings over a few years into the future, up to a point when earnings will potentially normalize. That is what I have done in this article, and evidently that is what the commentator has been lazy to do.

Hi observatory, sorry I've missed your comment earlier.

In terms of velocity of money, the current levels in the US are scary. An economy can continue going - "mechanically" or with additional government support - for quite a while, ignoring the signs of slowing, but this cannot remain so forever. And the longer it continues, the worse the eventual end is. A recent historical case in point in this sense is the Soviet Union. The USSR, like China in the 1980s, began to grow from an extremely low level after the Bolshevik Revolution. This, together with the abolition of the bourgeoisie in the country and the confiscation of this social cast's assets, made it look like the country was doing really well up until at least the 1970s. However, the truth was that by the early 1960s the systemically wrongly built economy was gasping for air and was only being driven forward artificially. This is unfortunately what we are observing nowadays with the US, and to a certain extent with the EU. We know how the USSR story ended - its dissolution in the late 1980s and early 1990s led to the greatest destruction of wealth in the modern history of the world, specifically for populations in Eastern Europe and Central Asia. I hope that doesn't eventually happen again with certain major players.

But in a nutshell - factors such as velocity of money and GDP/growth ratio do not work out immediately, especially when the situation is as disastrous as it is right now. The Fed tried to get away from this perpetually low interest rate and sea of liquidity situation in 2017, but by late 2018 it had to revert back to the old trend as the economy started showing signs of crashing.

I think people are too readily beginning to ditch time-tested economic postulates. Every time this has happened in history, things haven't ended well. I wish to be able to hope this time will be different, but history teaches us this would be hoping against hope.

FCTITAN, CharlesT, Flying Fox, thank you for your comments.

FCTITAN, unfortunately I don't speak Chinese. Could you give a short summary of the conversation?

CharlesT, not sure which analysts you are talking about, but in general very little has changed in the business situation of Top Glove from end of 2020 to now, so I wouldn't be surprised if someone's opinion hasn't changed since then. This is the first time I see valuation based on PE five years from the present year. Until then, do you discount any profits and their influence on the balance sheet of the company?

Flying Fox, projected ASPs are a product of the supply-demand dynamics in the market. In other words, extra supply (and extra demand) is taken into account when future ASP projections have been made by Frost & Sullivan. You can also refer to my previous article: https://klse.i3investor.com/blogs/bursainvestments/2021-02-16-story-h1541112319-Glove_Supply_and_the_Supply_Demand_Disequilibrium_Top_Glove_Supermax_Ha.jsp

In terms of other opportunities, unfortunately I personally don't see many good ones at present.

CuriosGuy, Seek, IamBoth, mikeazk, EatCoconutCanWin, thank you for your comments.

Seek, I am still going through the draft application proof for HKEX (it is over 700 pages). I will likely write a separate article on this matter once I have the chance. However, just a note - RM5.20 is not the IPO price.

IamBoth, thank you and I agree.

mikeazk, the question in the example is - did the investor buy the warrant via the open market, or at issuance from the IB?

CuriousGuy, Stockisnotfun, thank you for your comments.

CuriousGuy, factors for the fall in glove stock certainly go beyond CWs. However, I had been asked by people recently why there was such a sudden massive sell-off over the last couple of weeks, and CWs + local IBs selling is the only significant correlation (foreign IBs are buying, as seen from the graph). In terms of news, TG has resumed SBB, and company's CEO has restarted buying shares + Harta's CEO has restarted buying shares, there have been open market purchases by BoD members of Kossan. EPF has been buying shares of all 3 companies. It has certainly been disappointing that less action has been observed with Supermax, and that's another likely reason for the weakness in share price. Guidance on expected revenue and profits has been provided with the quarterly results by all the glove manufacturers, including most recently by Riverstone, Rubberex, and Care Plus.

Stockisnotfun, this might prove to be a good strategy, especially if you dislike volatility.

mikeazk, thank you for your comment.

Yes, it is highly likely that investors holding the CWs until maturity have lost money, but so has the IB. The only person who would have earned is the one who would have bought early, and then sold.

katsul51, Rational_Investor, thank you for your comments.

Rational_Investor, this is off-topic, so just a quick note. Harta has an incredible business and a great manager.

CHONG Kong Hui, thank you for your comment.

That's not necessarily going to be the case, although the downward pressure is likely to subside.

CCCL, oh sorry I might have misunderstood your comment. Yes, free float certainly results in higher volatility. This might be one of the reasons why Bursa is considering lowering the public shareholding requirement: https://www.theedgemarkets.com/article/bursa-consider-application-lower-public-shareholding-spread-15

CCCL, kelvin5349, thank you for your comments.

CCCL, I would say the problem is a lot more basic. The Malaysian market by design encourages short-term gambling-like behaviour due to small number of market participants, imperfect information availability, low public financial literacy, and lack of any tax on capital gains or dividends. The difference between now and the situation at other times is that since last year liquidity has been available more readily to a larger number of retailers due to cash handouts, low interest rates, and a limited number of options on disposable income allocation (for instance, people couldn't go on holiday abroad).

kelvin5349, we are running quite off-topic here, but thank you for letting me know about the basics of investment. I am yet to read about Warren Buffett using charts, let alone chartists' advice.

Zachzach, thank you for your comment. I don't see glove companies declaring bankruptcy, so I believe the answer is clear.

arv18, this sort of baseless insinuation is an ugly display of a low and sad individual. I will be disengaging hereafter.

arv18, I am happy to see your interest in myself runs deep, but my portfolio management runs a bit too far from the topic of this blog post.

arv18, I am glad to hear you have an image of myself built in your mind. I hope it helps.

goldenluck16, BeLikeBuffett, thank you for your comments.

BeLikeBuffett, indeed it appears that this is what JPM (or whoever else the short seller is) have been looking at. Interestingly though, they started covering their shorts quite urgently the last couple of weeks at a significant loss. It is possible they might have gotten some of the shares recalled by the borrowers, it is also possible that they have not been expecting this deep sell-off either.

arv18, herein lies the difference between our understanding of what investments represent. My goal when buying part of a business is not to find a bigger fool who would pay more for the same piece of the business. This is what traders/speculators try to do.

While I appreciate your well thoughts, "hoping" and "an uncle said something last week" are not, and must never be, a part of the process of investing. They are usually what you would do when you play mahjong over CNY or when you try your luck in Genting.

arv18, I humbly disagree. You seem to not understand where I am coming from.

Based on business prospects, a wise (to use your term) entry price on certain stocks I have written about, occurred during the period I mentioned. Extra market price manipulation, such as enormous short positions (biggest in the history of Bursa by value) or mispricing of derivative products, are neither something that can be predicted, nor something that has any relevance to the prospects of the business. I hope this explains things better.

arv18, thank you for your comment.

It seems like we have very different understanding of what investment means. Which is perfectly fine of course - different people have different understanding of things.

It appears that your asset allocation plan is a lot closer to what I would call trading/speculating rather than investing. As mentioned, this is fine and it appears that this is something many active participants in the Malaysian stock market (especially nowadays) consider a viable strategy.

From my perspective the market price is the last thing I look at once I have verified that the prospects of a business are good/great. If I am late, or if for some other reason I estimate that based on the business prospects the market price is too expensive, I won't invest. On the other hand, if I believe the market price is justified based on the business prospects, I am happy to buy a part of that business at the offered price. In my analysis, certain companies I have written a few times in the last few months about, became attractively priced around late November/early December last year, based on their business prospects.

In a properly functioning market, there won't be significant discrepancies between the true value of a company and its market price. An investor would be happy to find a bargain at 15-20% discount. The case is very different here, hence my quick post.

linheng, thank you for your comment.

"Proprietary" refers to Proprietary Trading Investment (IVT) traders. These are predominantly local institutions as far as I know.

Mtrade, FCTITAN, thank you for your comments.

FCTITAN, I doubt they have left. I think everybody is just speechless and dumbstruck right now. The current market prices of the Malaysian glovemakers literally make no sense. For comparison, Intco's and Sri Trang's prices have both doubled over the last 4 months.

https://klse.i3investor.com/blogs/bursainvestments/2021-02-25-story-h1541261214-Supermax_Quick_Data_Checks.jsp

It's shocking how misinformed some people are.

At the current rate of 6.44 million doses administered per day (based on the quoted Bloomberg article), vaccinating 60% of the world population (4.6 billion people) with two doses of the vaccine (a total of 9.2 billion doses) will take 1430 days, or almost 4 years.