SteadyT, i3 don't even want to tag/label my posts accordingly, and auto-delete my posts when I publish the link here. Why do you think Bursa/SC would react differently?

GillianTan78, thank you for your comment.

I read your post on the same topic, which was focused on the information provided in The Edge's article. I liked it.

One of the answers I received from Top Glove was on a question I had about the percentage deposit they collect from customers for both spot orders and non-spot orders. As I mentioned I will publish their response as soon as I get the permission to do that, but the percentage is materially different from JP Morgan's estimate. In ther report they mention (quote from The Edge): "the deposit paid is merely 4.7% of projected revenue for the financial year ending Aug 31, 2021 (FY21)." I am sure that this information would have been given to JP Morgan if they had asked for it since they are a substantial shareholder of Top Glove (20th largest shareholder in the company).

Have JP Morgan not contacted Top Glove to ask for information before publishing their report?

Ironically, yesterday Stephane Bancel, the CEO of Moderna, talking about COVID-19 at JPMorgan Healthcare Conference that "we are going to live with this virus, we think, forever." (reference)

Important disclaimer: Any views expressed are for informational and discussion purposes only. None of this information is intended as, and must not be understood as, a source of advice. It is imperative that you always do your own research and that you make any decisions based on your personal situation and your own personal understanding.

Yesterday an article published by The Edge mentioned a report by JP Morgan with a very grim expectation expressed on the glove sector. To be more precise, The Edge's article was based on a "research note" by JP Morgan dated January 11. I managed to view the original report, through a membership I have, and it is actually dated January 6.

As with AmInvest's report (you can read my notes on it here), I will not comment on the assumptions made, no matter how inconsistent with real world data and trends they are. I will solely focus on the numerical values from which the target prices are derived. To reiterate, JP Morgan's target prices are RM3.50 for Top Glove, RM8.50 for Hartalega, and RM3.80 for Kossan. These target prices are substantially lower than the consensus target prices, and even substantially lower than the target prices of the next most bearish analyst. For instance, for Top Glove, the nearest most bearish analysts are Macquarie at TP RM5.80, and the infamous AmInvest at TP RM6.50. Coincidentally, Macquarie have outstanding structured warrants that would be in the money if the market price of Top Glove goes above RM6.627, expiring on January 29 (see here).

We will once again focus our attention on the figures for Top Glove, because that is the company that has released the largest amount of data about its current and expected financial position publicly and therefore the company for which revenue and earnings are most predictable. A few days ago I sent an email with questions to Top Glove to fill some of the gaps of data that was not available publicly yet. They replied to me yesterday, and I am currently seeking their approval to share this additional data publicly. I will do so as soon as I get the approval.

Referring to my notes on AmInvest's analysis, the part that made the least sense was the calculated net profit for FY21. The case with JP Morgan is not the same. In fact, the estimated revenue and earnings in their report are above the consensus level of RM20.5 billion and RM10.5 billion respectively. JP Morgan's analysts expect FY21 revenue to come at RM22.956 billion, and net profit to come at RM11.674 billion. This translates into a net profit margin of 50.9%, which is perfectly in line with the consensus (see my AmInvest report notes for reference). Let's assume that JP Morgan's estimated EPS of RM1.46 for FY21 is accurate. As Top Glove recently released news on increasing the dividend payout to 70% for the financial year, and having in mind that the payout for 1QFY21 was 56%, dividend per share (DPS) for FY21 will come to RM0.97 according to JP Morgan's own estimate. At target price of RM3.50, this is a dividend yield for the year equal to a whooping 27.7%!!! Warren Buffett, arguably the greatest investor in the modern history of the world, has only been able to achieve 17.1% CAGR since 1985 (reference), so such a dividend yield would beat him by an enormous margin. Additionally, the report (again, it is dated January 6, 2021) provides outdated information to the clients of JP Morgan, because the dividend payout is estimated at 50% whereas the 70% payout announcement was made on December 4 (reference).

Did JP Morgan make a very significant miscalculation somewhere?

While JP Morgan did not deviate from the consensus at all with their estimate from the consensus estimate for FY21, the deviation is drastic for FY22. Their estimate revenue is RM11.971 billion, in line with the consensus RM13.4 billion. However, their estimate net profit is RM1.686 billion, way off from the consensus RM4 billion. In other words, the consensus profit margin for FY22 is 30%, while JP Morgan's is 14.1%, or more than twice lower. Even more drastically, for FY23, their estimated net profit margin is 6%, compared to consensus average 20%, or more than three times lower. There is no explanation on why the profit margin of the company is so much below the consensus average. The last time Top Glove has reported profit margin below 6% was in November 2011 - 9 years ago (reference). This is important, because JP Morgan peg their valuation to FY22 earnings, ignoring FY21 and any consequences this financial year might have on the financial position of the company.

Is JP Morgan saying that the largest glove manufacturer in the world will operate at entry level profit margins?

Note that JP Morgan believe that Top Glove will report RM11.674 billion in net profit for FY21. Additionally, they believe that the cash pile of the company by FY22 will be RM4.107. If we take these two figures, and we apply one of the most basic and most conservative valuation methods - discounted cash flow, we get that at RM3.50, 55% of that target price's value is contained in what the company is expected to earn this year alone.

@kl_guy, I tried, the link gets deleted automatically.

Wow, my comments get auto-deleted when I publish a link to the article. Anyway, click on my profile and go to "Blogs" if you want to read it.

Oddly, the i3 admin keeps deleting my posts with my link to my article on JPM's report.

Anthem2, thank you for your comment.

I am not sure about the methodology Morningstar use. However, Top Glove is a small part of the overall worldwide shareholding of JP Morgan. JP Morgan manage an enormous amount of assets - US$2.36 trillion as of 2019 according to Statista (https://www.statista.com/statistics/431790/leading-asset-management-companies-worldwide-by-assets/).

However, Top Glove is a very significant part of JP Morgan Malaysia Fund's portfolio, to which I have linked in the article above.

Right now enormous buy queue, and orders cannot get matched because the short seller stopped shorting at 3.9 million shares for now. There are very few other sellers at this price, so the huge buy queue cannot get matched.

"moneymakerx Waves coming to an end. Collect on dips. It will be better to collect on end of Jan - Mid Feb. Expecting another round of big attack then. Shortists will close their ranks before then to push up so that they can short again when IDSS comes in."

IDSS doesn't work the same way as RSS. IDSS short sales need to be closed the same day, so they don't affect the share price, with other things equal. RSS on the other hand means that a short position can be opened today, and closed a number of days in the future, thus suppressing the market price for this time frame.

950 thousand shares shorted for Harta - 27% of total volume for the day.

3.5 million shares shorted up to now - 15% of the total volume of trades.

witan and chamlo, thank you for your comments.

chamlo, it is just a speculation, that is why I didn't give a straight-up answer to the question. I just presented the latest facts.

witan "Normally how is average time before shorties need to close their position? 1 week or 2 weeks?"

We don't know. Apparently on the US market, it's 13 days in some cases, but I haven't seen clear guidelines for this on Bursa.

dusti, thank you once again for your comment. I understand what you mean now. Unfortunately, the report has not been withdrawn, and I doubt it will be withdrawn. Hope is it will get edited soon.

Shorting volumes for today up to now (11am, 2 hours after beginning of trade):

Top Glove: 1,610,000 (11% of total volume)
Hartalega: 695,100 (29% of total volume!!!)
Kossan: 1,672,700 (25% of total volume!!!)

The last few days the short seller has been defending the position on Kossan with their life, because that's the only stock that has actually dropped in price since 31 Dec closing.

dusti, thank you for your comment, but your logic escapes me. In order for me to know that the report is flawed, I would need to first read it.

LimitUp and Mabel, thank you for your comments.

pjseow and Andre Kua, thank you for your comments.

pjseow, that is indeed the case, and that is what appears to be significantly off with the report of AmInvest. There is no explanation or justification as to why the profit margin is given at 30% instead of 50%. On the contrary, according to the report the profit margins are not expected to suffer (at least for this year).

Andre Kua, supply is expected to be running behind demand at least until year-end 2023, according to reports by Margma. Of course beyond that point there is little visibility. However, setting up of a glove manufacturing facility with a working production chain is a major undertaking, which has proven over the years to not be achievable for everyone. New entrants have significant disadvantages to established players.

Revenue for FY22 (ending August 2022 for Top Glove) is mostly locked in with delivery times stretching 560 days from now for nitrile gloves (the highest revenue segment).

A quick update on the short position:

- It currently stands at 222,976,300 shares, or 2.72% of total outstanding stock of Top Glove; that is 1.28% from the allowable maximum of 4%.

- There has been closing of short positions equal to 3,680,900 shares, or 1.65% of the total short position up to end of day on Tuesday (the last day we have data for). In other words, 98.35% of the short position is still open, and the shares have not been bought back.

https://www.bursamalaysia.com/misc/missftp/sblnt/NetShortPosition20210113.pdf
https://www.bursamalaysia.com/misc/missftp/securities/securities_equities_rss_2021-01-13.pdf

Sikusiku I messaged you privately.

sikusiku and Up_again, thank you for your comments.

sikusiku, I updated the article earlier to reflect that change. However, the change is minimal and doesn't explain the rest of the inconsistencies.

MatKoh "Ben, you have the final tally? Anyhow, looking forward to your daily report. I'm sure we will gain further insights as always!"

These numbers are unconfirmed, as I think some clearing of orders is still ongoing, but the final numbers will be very similar. Short sell volume for the day:

Top Glove: 32,300 (negligible)
Harta: 259,200 (3.3% of daily volume)
Kossan: 360,200 (2.8% of daily volume)
Supermax: 170,700 (0.7% of daily volume) (this is strange, so we will have to wait for the official figures to be released)

CJkenho, thank you for your comment.

The only other piece of news I saw came from Focus Malaysia. There was a "whistleblower" who bad-mouthed the company to Focus Malaysia. They checked with Top Glove, and the company has replied promptly: https://focusmalaysia.my/top/top-glove-not-taking-mco-lightly-clarifies-claims-of-sop-breaches

LaoTzeAhSir and GillianTan78, thank you for your comments.

GillianTan78, I assume your comment is related to my other article from today: https://klse.i3investor.com/blogs/bursainvestments/2021-01-13-story-h1539320832-Who_Is_the_Mysterious_Gloves_Short_Seller.jsp

I didn't want to comment on the actual notes from the report, because I hadn't seen the actual report. However, it does seem like JP Morgan have done their best to selectively present only bits and pieces of information that fit their narrative.

Today the shorting attacked has moved to Supermax. 1,360,000 shares shorted up to now - the second highest daily short sale volume after "the big short" from last Monday.

Today the shorting attacked has moved to Supermax. 1,360,000 shares shorted up to now - the second highest daily short sale volume after "the big short" from last Monday.

BALANCE_VIEW and gongkia, thank you for your comments.

Unfortunately, it is impossible to know if it was done intentionally. Let's hope that as wkc5657 mentioned above, it might have been an oversight on the supervisor's side to approve the report for publication.

NewbieCK, you are welcome to submit it to the media outlets. Unfortunately I don't have any contacts.

I just published a new post on who the potential "mysterious" short seller of gloves might be:
https://klse.i3investor.com/blogs/bursainvestments/2021-01-13-story-h1539320832-Who_Is_the_Mysterious_Gloves_Short_Seller.jsp

GLNT, thank you for your comment.

I will not argue on the definition of "newbie", but in my humble opinion someone with a few years of experience should not be allowed to make this amount of mistakes (if they were indeed mistakes).

SteadyT, thank you for your comment.

I don't want to call out names (although the name is given in the report). I can only say that this analyst is not a newbie. I have seen reports of his dating back a few years.

wkc5657, I would have hoped so, but this is not the case. The same report, with the same inputs, was released in December.

supersaiyan3, thank you for your comment.

This is actually one of the lowest quality analyst reports I have read. There are many problems with it beyond the seemingly random figures for profits they have given, including utilisation rates, exchange rate assumptions, and (what appear to be) ever-rising raw material prices until 2023! Really poor work.

gLOVErs, thank you. But for some reason i3 do not tag my recent posts with the corresponding company labels, so very few people are actually able to find them. I have messaged i3 multiple times about that, and I have been unsuccessful over the last few days.

If anyone else could message the i3 admins to ask them to label my post with the correct labels, that would be truly appreciated. Here is what I send to them usually:

Hi, could you please add the labels TOPGLOV, HARTA, KOSSAN, to my post please: https://klse.i3investor.com/blogs/bursainvestments/2021-01-13-story-h1539318879-Top_Glove_Serious_Material_Inconsistencies_with_AmInvest_s_Report.jsp

I usually message them from here: https://messenger.i3investor.com/m/conversation/admin

My analysis of AmInvest's "analysis":

https://klse.i3investor.com/blogs/bursainvestments/2021-01-13-story-h1539318879-Top_Glove_Serious_Material_Inconsistencies_with_AmInvest_s_Report.jsp

My analysis of AmInvest's "analysis":

https://klse.i3investor.com/blogs/bursainvestments/2021-01-13-story-h1539318879-Top_Glove_Serious_Material_Inconsistencies_with_AmInvest_s_Report.jsp

My analysis of AmInvest's "analysis":

https://klse.i3investor.com/blogs/bursainvestments/2021-01-13-story-h1539318879-Top_Glove_Serious_Material_Inconsistencies_with_AmInvest_s_Report.jsp

My analysis of AmInvest's "analysis":

https://klse.i3investor.com/blogs/bursainvestments/2021-01-13-story-h1539318879-Top_Glove_Serious_Material_Inconsistencies_with_AmInvest_s_Report.jsp

Update to my post on short selling:
https://klse.i3investor.com/blogs/bursainvestments/2021-01-12-story-h1...

Some short positions on Top Glove stock have been closed on Monday. The amount is minimal - 3,680,900 shares, equivalent to only 1.7% of the net short position on the stock of the company.

As of Monday, the net short position on Top Glove is equal to 2.68% of its stock, or 1.32% away from the limit.

coldcoldwater, yes, that's the best theory we have right now. The short seller has been unable to procure enough shares of Supermax, because EPF and KWAP (for example) are not substantial shareholders there. This might also be why JP Morgan last month didn't issue target price for Supermax, but did so for Top Glove, Hartalega, and Kossan. Of course all of this is just speculations, and we cannot know for sure.

CJkenho and limontea, thank you for your comments.

CJkenho, it is hard to estimate how much is the average shorted price for the short seller at this point, but since most of the shorting was done in the morning last Monday, let's assume that specifically for TG, it is similar to the closing price as of 31 December 2020 - RM6.12

The short seller is paying fees to the lender of the shares, likely on a daily basis. The fee may be significant in value. Thus, it is conceivable that if the short seller does not close their position within this week, their break-even price might be around RM6. Obviously currently they are very much in the red. However, my suspicion is that there is a higher order game in place here, i.e. it is not simply a game where the short seller necessarily wants to profit only from the short trade itself.

Regarding why they didn't attack more aggressively, I believe that they might, at present, not have many shares left for shorting. They might be trying to procure more shares from lenders (such as EPF for instance), but we can't know unfortunately.

Israel has a number of strategic advantages over most other countries in the world:

- Small population (101st place in the world)
- High population density (17th place in the world)
- High level of wealth (19th in GDP per capita)
- Great infrastructure (23rd in the world)
- Extremely well-equipped army

While some of these are shared by other countries, like city-states in Europe, Singapore, Hong Kong, or countries like The Netherlands and Denmark, the most important differentiator for Israel is this - one of the (if not THE) most powerful political lobbies in the world. I don't think Muhyiddin, for instance, could call the CEO of any of the vaccine manufacturers at 2am at night to ask him for a favor.

"stevenckheng weird lo, seems like not RSS parking the wall at 6.7. IB block 6.7 ?"

This has been a very well-orchestrated exercise. It's not done just via RSS, as the "exercise" started in December. Overall, the goal is to dull down any upward price momentum as much as possible by setting up resistance levels. This is done both via short selling, and via standard selling.

"chiongmouguai Are funds still shorting glove stocks? Anyone can enlighten please"

Yes, they are. Short selling for the day on Top Glove is 1,976,000 shares up to now.

Morning session shorting volumes and value based on VWAP:

Top Glove - 1,750,000 (RM11.38 million based on VWAP RM6.50)

This is equivalent to 4.15% of all transactions this morning. Price still went 14 sen, or 2.18% up.

aphrodite, that's not a choice. That's a defense of an already existing enormous short position. They have no choice but to defend it at present. The idea is to try to subside the momentum as much as possible, and potentially to suppress the price a bit when weakness is spotted. The alternative is to buy back the shares and participate in the buy frenzy, which would result in enormous losses for them.

Short selling is speeding up. RM6.50 needs to be defended at all costs apparently. 1,250,000 shares shorted so far and increasing. More than 700,000 just in the last 30 minutes.

BALANCE_VIEW, wkc5657, thank you for your comments.

wkc5657, please note that at the peak of the attack last Monday, the short seller unleashed short sales equivalent to 1.52% of the entire outstanding stock of Top Glove. As of yesterday end of trade, the net short position on Top Glove is 2.73%. Thus, there is only 1.27% left until the limit of 4% is hit. In other words, unless the short seller unleashes all at once, in a last attempt to bring the price down, there would be no other possibility for a downtrend.

It appears that the short seller might have been unable to procure sufficient quantities of shares for short selling on Supermax, probably because the free float there is significantly smaller. If yesterday was any tell, it seems like the short seller may be going more aggressively now on Hartalega.

Winner88, thank you for your comment. We will need to wait and see if Bursa might decide to reimpose the ban on short selling now with the new round of MCO.