Topglov: Planning A Huge Acquisition

Topglov was reported to be 99% sure that it has a deal in hand to acquire a glove producer that's based in Malaysia. The acquisition will cost about RM1 billion. For more, go here.

There are only 4 large glove producers in Malaysia: Topglov, Harta, Kossan & Supermx. I don't believe the major shareholders of Harta & Kossan would want to sell out. Two years ago, I would not believe Dato' Seri Stanley Thai, the chairman of Supermx would want to sell out either. However, Stanley - reportedly a former colleague of Topglov's chairman Tan Sri Lim in their early working career - is not doing too well. He has some legal problems of insider dealing and his group has some issues with the tax authority. If anyone of the big four glove producers has to sell out, it is most likely Stanley Thai.

Stanley Thai has direct & indirect shareholding of about 35% in Supermx. Supermx has a market capitalization of RM1.22 billion. That's pretty close to the figure quoted by Topglov's Lim. Assuming that Supermx is the acquiree company, what's the fair price of the company?

I have tabulated below the valuation of Supermx, Harta, Kossan & Topglov.



The average PER of Harta, Kossan & Topglov is 29.84x while Supermx's PER is only 17.70x. Assuming that Supermx deserves a PER of 80% of the average PER of Harta, Kossan & Topglov, then it shoudl command a PER of 23.88x. That means Supermx may command a fair value of RM2.47. That's 35% higher than its last done price of RM1.83.

Chartwise, Supermx has broken its long-term uptrend line, SS. The next support is will come from the horizontal line at RM1.60.


Chart: Supermx's monthly chart as at Oct 17, 2017 (Source: Shareinvestor.com)

The interesting question is Why did Lim shares this information in the public. A glove producer based in Malaysia, producing surgical gloves and valued at RM1 billion. Why? I think Topglov has the deal in the pocket and it wouldn't mind not having 100% ownership of Supermx. The higher the market price of Supermx, the lower is the chance of 100% acceptance of Topglov's MGO and the lower is its out-of-pocket expenditure.

I think Supermx could be a good trading BUY. Given the uncertainty in the market, you need to exercise careful discretion if you choose to trade in any stock.