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Here' s Why Top Glove Corporation Bhd (KLSE:TOPGLOV) Can Manage Its Debt Responsibly
Published
October 31, 2022
Source: Shutterstock
David Iben put it well when he said, ' Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It' s only natural to consider a company' s balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly,
Top Glove Corporation Bhd. (
KLSE:TOPGLOV) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of ' creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
Our analysis indicates that
TOPGLOV is potentially undervalued!
What Is Top Glove Corporation Bhd' s Debt?
You can click the graphic below for the historical numbers, but it shows that Top Glove Corporation Bhd had RM399.1m of debt in August 2022, down from RM458.7m, one year before. But it also has RM950.4m in cash to offset that, meaning it has RM551.3m net cash.
KLSE:TOPGLOV Debt to Equity History October 31st 2022
How Healthy Is Top Glove Corporation Bhd' s Balance Sheet?
The latest balance sheet data shows that Top Glove Corporation Bhd had liabilities of RM941.8m due within a year, and liabilities of RM318.9m falling due after that. Offsetting this, it had RM950.4m in cash and RM468.7m in receivables that were due within 12 months. So it can boast RM158.5m more liquid assets than
total liabilities.
This short term liquidity is a sign that Top Glove Corporation Bhd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Top Glove Corporation Bhd boasts net cash, so it' s fair to say it does not have a heavy debt load!
It is just as well that Top Glove Corporation Bhd' s load is not too heavy, because its EBIT was down 96% over the last year. Falling earnings (if the trend continues)) could eventually make even modest debt quite risky. There' s no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Top Glove Corporation Bhd' s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find
this free report on analyst profit forecasts to be interesting.
But our final consideration is also important, because a company cannot pay debt with paper profits it needs cold hard cash. While Top Glove Corporation Bhd has net cash on its balance sheet, it' s still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Top Glove Corporation Bhd produced sturdy free cash flow equating to 67% of its EBIT, about what we' d expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Summing Up
While it is always sensible to investigate a company' s debt, in this case Top Glove Corporation Bhd has RM551.3m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of -RM783m, being 67% of its EBIT. So we are not troubled with Top Glove Corporation Bhd' s debt use. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we' ve identified
2 warning signs for Top Glove Corporation Bhd that you should be aware of.
https://simplywall.st/stocks/my/healthcare/klse-topglov/top-glove-corporation-bhd-shares
16/8/22: From the historical chart, 2016 average at $1.65, dividend S$0.02, 2019 at $1.48, dividend MYR0.125. It rolls down from $9.14 on 3/8/2020 to 29/9/2022 at $0.179. Consider business environment on 2016 which is no pandemic, compare it with today which should have demand for glove and no dividend is paid, so something is wrong and EPF is not protecting it investment.
23/9/22: Yahoo Finance painted a faint picture, cited oversupply situation. Look at it price chart from Oct2017 till Jan2020, it shares price never fall below $1.44, also pay dividend. Current over supply was caused by Pandemic. Glove manufacturing main ingredient is natural rubber which Malaysia is the main world supplier, the oversupply in fact raise Top Glove to be a King. So as long as good P/E and proper Management, at current price of $0.245 is a good buy.
CAREPLUS GROUP BERHAD should post Q result this mid month,
est. around one month earlier than top glove,
by looking at careplus Q result will have a better feel.
**careplus Q result might seepage already, this counter got a very good run up recently, double up liao.
Bursa Gloves all went up a lot since last week.
Soon they will report their results.
Likely to be positive?
Recovering slowly up.
0.245 lai
The covid-19 virus still around in Malaysia Singapore...GE for Malaysia USA and maybe UK all need gloves leh
...
below 20c? I will buy more NAV RM 71 cents
2 more Q will make money,by than will be 30 cents ( my opinion and let see )
eric998 ( Date: 19-Oct 09:39) Posted:
going back to below 20c?
Francisgohyc ( Date: 19-Oct-2022 10:30) Posted:
| Now 23cents it slowly moving up from here if nest Q is profitable |
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going back to below 20c?
Francisgohyc ( Date: 19-Oct-2022 10:30) Posted:
| Now 23cents it slowly moving up from here if nest Q is profitable |
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Now 23cents it slowly moving up from here if nest Q is profitable
18 Oct
From Winners,
Facts of Financial Market Case.
Buy The Rumours and Sell The Facts.
Look/Think Ahead and Buy/Sell Price In Ahead.
14 Oct
From MOH
Facts of the case
- There has been no evidence of XBB subvariant causing more severe illness than previous variants. In fact, our local data in the last two weeks shows that XBB cases are estimated to have a 30% lower risk of hospitalisation compared to Omicron BA.5 variant cases.
- No increases in COVID-19 deaths have been observed over the past month.
- Please visit www.moh.gov.sg for latest information on COVID-19.
just went GenTing over weekends.
You think people scared meh
So many people didnt bother, all never wear mask.
Toursim like more huat
Edward555 ( Date: 13-Oct-2022 08:34) Posted:
Coronavirus: Omicron subvariant XBB.1 is strongest by far in vaccine evasion, a Hong Kong expert has warned.
A new Covid subvariant- XBB.1- which was recently detected for the first time in Hong Kong has sparked concerns as it has the strongest ability by far to evade vaccine protection, leading expert Dr Gilman Siu Kit-hang warned according to a report in South China Morning Post. The expert also said that there could be more strains during the winters.
Here are 5 points on Omicron XBB.1 subvariant:
1. Dr Gilman Siu Kit-hang said that research indicates that the Omicron subvariant XBB.1 which was found in an imported infection is a combination of BA.2.10 and BA.2.75.
2. The subvariant is more evasive to vaccine immunity than other known variants.
3. Dr Gilman Siu Kit-hang said XBB.1 was first found in Singapore, while Nepal and Bangladesh have also recorded cases of XBB.1.
4. Dr Gilman Siu Kit-hang said that it was difficult to say whether XBB.1 would become the dominant strain in Hong Kong.
5. Issuing a serious warning, the expert said that more mutant strains were expected to emerge in the winter throughout the world...
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Health related counter might see a spike in interest during this xbb wave.
KUALA LUMPUR (Oct 13): Share prices of rubber glove makers stole the limelight on Bursa Malaysia on Thursday (Oct 13), with Hartalega Holdings Bhd&rsquo s shares leading the gains in terms of value gains.
When contacted, Malacca Securities head of research Loui Low Ley Yee told The Edge that rotational play kicked in, as investors swapped sectors from technology to rubber gloves, as the market has fully priced in the anticipated downside risk for gloves including acute oversupply and margin compression due to the falling average selling price (ASP) of gloves.
&ldquo Because the market has priced in everything (downside risks), any uptick or rebound in ASP, gloves will benefit. Investors have factored in (risks such as) overstretch in valuation and drop in earnings now perhaps it has [already hit] bottom for the (glove stocks&rsquo ) earnings and will recover soon.
&ldquo In contrast, [the] technology [sector] has more room to drop due to overstretching in valuation. The sector&rsquo s earnings are expected to come down, given the layoffs news from the big tech companies, coupled with the US ban on chips sales to China, this could be a repercussion towards the downward cycle of the demand (for semiconductor products) and that worries the market. So, we should be seeing a slowdown in technology companies&rsquo earnings. That is what I am anticipating. So, glove stocks [are a] safer bet to invest in,&rdquo Low added.
Low also quoted Malaysian Rubber Glove Manufacturing Association (Margma) as saying that glove supply-demand equilibrium is expected within six- to nine months. To recap, Margma president Dr Supramaniam Shanmugan had last month said the normalisation of equilibrium conditions for gloves supply-demand will occur within six- to nine months, based on the depletion of inventory in the pipeline.
Against this backdrop, Low said investors will have to start positioning themselves for glove stocks, in anticipation of glove counters&rsquo earnings stabilising amid a normalised ASP by then.
When asked if the value of glove stocks has emerged, the head of research said investors will have to wait until the glove companies&rsquo earnings stabilise.
Meanwhile, Rakuten Trade Sdn Bhd vice president of equity research Thong Pak Leng said positive performance of glove stocks was due to technical rebound, after falling significantly this year.
Hartalega closed at its highest in nearly two months at RM1.84, after it rose 11 sen or 6.36%, making it the bourse' s fourth largest gainer by value. It earlier hit an intraday high of RM1.89. At RM1.84, it had a market capitalisation of RM6.31 billion.
Hartalega was also the sixth most actively-traded counter of the day, after it saw some 33.52 million shares exchanging hands.
Top Glove, the most actively-traded stock of the day that saw 130.06 million shares done, gained 5.5 sen or 8.66% to close at 69 sen &mdash its highest since Sept 20, when it traded at 71 sen.
It traded between 63.5 sen and 71 sen during Thursday&rsquo s session, compared to the closing price of 63.5 sen on Wednesday. Top Glove&rsquo s market value stood at RM5.66 billion with the current closing price of 69 sen.
Similarly, Supermax Corp Bhd and Kossan Rubber Industries Bhd &mdash which round up the top four of the rubber glove sector, together with Top Glove and Hartalega &mdash also ended Thursday&rsquo s session with positive gains.
Supermax, which was the fourth most actively-traded stock, climbed 6.5 sen or 9.15% higher to settle at 77.5 sen, for a market capitalisation of RM2.11 billion. It saw 36.98 million shares traded.
Kossan Rubber closed up four sen or 3.64% at RM1.14, for a market capitalisation of RM2.92 billion, after 8.25 million shares were traded.
Notwithstanding that, the four glove makers&rsquo share prices have come down significantly from the beginning of this year.
Shares of Top Glove have plummeted 71.13% or RM1.70 from RM2.39 on Jan 3 this year, while Hartalega has lost 67.38% or RM3.80 from RM5.64 at the beginning of the year.
Supermax&rsquo s share price has plunged 45.8% or 65 sen from RM1.43 during the same periods, while Kossan has shrunk 38.17% or 72 sen from RM1.86.
In terms of their smaller counterparts, they have also made gains on Thursday.
Careplus Group Bhd closed 6.5 sen or 26% higher at 31.5 sen, valuing it at RM181 million, while Comfort Gloves Bhd ended the session 2.5 sen or 5.56% higher at 47.5 sen, bringing its market value to RM277 million.
Hextar Healthcare Bhd, previously known as Rubberex Corp Bhd, rose marginally by one sen or 2.27% to settle at 45 sen, for a market capitalisation of RM412 million.
Bursa&rsquo s Healthcare Index, which includes glove manufacturers, pharmaceutical companies and hospital operators, rose the most on Thursday in percentage terms at 3.35%, as share prices of glove manufacturers climbed. The index closed up 49.91 points to 1,539.05 on Thursday, from 1,487.47 on Wednesday.
Meanwhile, Bursa&rsquo s Technology Index fell 1.54% or 0.88 points to settle at 56.23, from 56.99.
Nonetheless, the gains in Top Glove and Hartalega, both constituents of the benchmark index FBM KLCI, could not stem the decline in FBM KLCI, which closed 0.52% or 7.21 points lower at 1,373.36.
seem strong today ...
eric998 ( Date: 13-Oct-2022 14:14) Posted:
| No debt so no need to worry interest rate, very good value, HUAT! |
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No debt so no need to worry interest rate, very good value, HUAT!
Well Done. Accumulation phase
sadhu123 ( Date: 13-Oct-2022 12:28) Posted:
Now is the time...From 0.17 to 0.25
This coming Dec. Q to Q results will sure to have improvement...
90% sure by July.2023, this counter will test back One Dollar Ringgit..
Dunno about Long term, this One Two Year Sure Can Recover...
Is the company in any Cash Flow Issue, Can the company still profit for the next One Years ahead...
Did the Company Loss any money more than a whole year...
Just Vested and remain to keep fixed Deposit for One Year, 25% return stamp chop.
pepperfox ( Date: 13-Oct-2022 09:12) Posted:
| why not consider Envirohub? |
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Sniper for Value...
short to near middle term look true promising...
Media have been pricing in all negative and price took a hard beating (sorry )...Now is the Time to Stage up.
Presently Price To All Ratio, is looking Real Good Value...
company looks good to to recover from this coming Q report...looking forward for the 5% mark up report.
er...to 0.30...i also got some 0.19.
but average cost still high.
nevertheless, got up got down, squeeze the shortists.
sadhu123 ( Date: 13-Oct-2022 12:28) Posted:
Now is the time...From 0.17 to 0.25
This coming Dec. Q to Q results will sure to have improvement...
90% sure by July.2023, this counter will test back One Dollar Ringgit..
Dunno about Long term, this One Two Year Sure Can Recover...
Is the company in any Cash Flow Issue, Can the company still profit for the next One Years ahead...
Did the Company Loss any money more than a whole year...
Just Vested and remain to keep fixed Deposit for One Year, 25% return stamp chop.
pepperfox ( Date: 13-Oct-2022 09:12) Posted:
| why not consider Envirohub? |
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