Right now Top Glove (BVA.SI / TPGC.KL) share price is at SGD$1.270

At this price, Top Glove is valued at price-to-book ratio of 3.898 and a trailing distribution yield of 14.736%

With the current valuation, would I invest in it?

Let’s go through it using my 7 steps guide and see how I pick the Best Singapore Dividend Stocks.

Disclaimer: Information should be used for entertainment purpose only. Full disclaimer below.

Stock Analysis - Top Gloves - 5Y Share Price - Aug 2021

Top Glove (SGX: BVA / KL: TPGC) 5 Year Chart

Year 2017 to 2021

As a quick recap, here are the 7 steps I use to pick the best Singapore Dividend Stocks.

  1. Debt to Equity Ratio
  2. Dividend Yield
  3. Dividend payout ratio
  4. EPS Growth Rate
  5. Return of Equity (ROE)
  6. Price-to-Book Ratio
  7. MOAT

Business Background

Top Glove Corporation Bhd is the world’s largest rubber glove manufacturer. Headquartered in Malaysia, it have 48 factories, 812 production lines and employ over 22,000 employees

Top Gloves is listed in the following stock exchanges.

  • Kuala Lumpur Stock Exchange
  • Singapore Stock Exchange

Manufacturing Facilities:

  • Malaysia
  • Thailand
  • Vietnam
  • People’s Republic of China (PRC)

Distribution Hubs:

  • Malaysia
  • Vietnam
  • Thailand
  • Germany
  • Brazil
  • United States of America (USA)
  • People’s Republic of China (PRC)

Export to 195 countries world wide:

  • North America
  • Latin America
  • Europe
  • Africa
  • Asia
  • Middle East
  • Oceania

Products

  • Nitrile Gloves
  • Natural Rubber Gloves
  • Surgical Gloves
  • Condom
  • Mask

Raw materials used:

  • Latex
  • Nitrile
  • Butadiene
  • Crude Oil
Gloves

DEBT TO EQUITY RATIO

Check for: Less than 0.5 D/E Ratio

Looking at the latest annual report for Year 2020.

Singtel have a D/E ratio of 0.089.

This is lower than 0.5 D/E Ratio.

D/E ratio of less than 0.5 will means that the company is not overleverage.

But as it is have a D/E of less than 0.1 which is pretty amazing, a deep dive to the past data shows that, the low D/E occurs after the onset of pandemic.

I will probably guess that, with the pandemic, it have positively impacted the company to increase it’s ability to generate higher revenue and income.

The company have an low risk of the company defaulting.

My Opinion: Pass

Dividend Yield

Check for: More than 2.5% dividend yield

For Year 2020, Top Glove pay a dividend of MYR 0.432 (1 SGD : 3.12 MYR) which translate to a dividend yield of 10.87%.

This is higher than my target of 2.5%.

Looking at the distribution history, there is a sharp increase from 2019 to 2021 in the amount of dividend distributed year-on-year.

Year 2020 and 2021 are both years of the pandemic. There is a surge in the demand on surgical gloves, mask and even condoms. 

This is probably the reason why there is an increase in dividend.

It is higher than the risk free rate (CPF OA Account) of 2.5%. I will give it a verdict of pass.

My Opinion: Pass

Stock Analysis - Top Glove - Dividend Yield

Dividend Payout Ratio

Check for: Less than 80% dividend payout ratio

At the time of writing, a quick check using some of the online tools shows that the dividend payout ratio for Top Glove is 51.14% which is within my threshold of 80%.

A payout ratio of less than 100% means the company is using it’s earnings to pay its shareholder in dividend. A payout ratio of between 50% and 80% is recommended for dividend paying stocks.

I personally think a payout ratio of around 50% is the sweet spot for a great dividend stock.

My Opinion: Pass

EPS Growth Rate

Check for: More than 10% EPS Growth

Earning Per Share (EPS) critical when analyzing the profitability and quality of a stock. A negative growth rate of EPS will mean dilution of shareholder’s value, or the company is not doing well.

Here, we will like to see an EPS growth of 5 years or more.

Quick check on the 2020 annual report.

The EPS 5 year growth rate is an amazing 42.173%! Wow!

Yup, the EPS growth for Top Glove is more than 10%!

This is probably due to the pandemic, but nonetheless, they are growing our shareholder’s money at a pretty amazing rate for the past 5 years.

My Opinion: Pass

High Return Of Equity (ROE)

Check for: More than 10% ROE

ROE is one of the most important ratio used by Warren Buffett.

Return of Equity is by far the most important metric used in fundamental analysis. ROE is used to measure the management’s ability to make a return on your investment. ROE can also be used to measure the quality of the management. The higher the ROE, the better for the shareholders.

At the time of writing, the ROE of Top Glove have an ROE of 40.276%!

Any ROE of more than 20% is very high.

A deep dive into the history shows that Top Glove have >10% ROE since 2017, and its ROE shot up to >40% in 2020, probably due to the effect of the pandemic as well.

Top Glove 2017 2018 2019 2020
Return on Equity (ROE) 17.1% 19.3% 14.8% 40.3%

This is a good sign of a company with a good management.

My Opinion: Pass

PRICE-TO-BOOK RATIO

Check for: P/B Ratio of less than 1.8

Top Glove is the largest glove manufacture in the world and is one of the component stocks of FTSE Bursa Malaysia Mid 70 index.

Due to the pandemic, there is high level of interest in the stock, which cause the stock price to shot up to the roof in Aug 2020 to MYR 9.655.

Subsequently the price have fall to less than MTR 2.00 per share.

(It is also reported that the big jump in price is due to the short squeeze following the foot steps of GameStop.)

With so much attention on Top Glove, the price of the stock will most likely be traded above it’s valuation (book value).

At the time of writing, the current P/B ratio of Top Glove is 3.898.

Meaning, it is trading at over 3 times its book value.

My Opinion: Fail

MOAT

Check for: Not just having a MOAT, but a great MOAT

Top Glove is the largest glove manufacture in the world with factories and distribution centers located world wide.

Glove making is more of a commodity.

Profitability of Top Glove is highly dependent on the following:

  • Cost of the raw materials
  • Cost of labor
  • Demand in the market
  • Logistics and distribution cost

Anyone with the technology can setup their own glove making factories.

But, not everyone have the infrastructure to distribute the products effectively and supply worldwide.

  • 48 Factories
  • 7 Distribution hub

According to Phil’s book Rule#1 investing, Top Glove have the “Price MOAT” and probably “Brand MOAT”.

Price MOAT is a very attractive MOAT to have in any company, it prevents small players to underprice your product.

Brand MOAT, as the top player in the industry, it allows you to price your product higher than your competitors while still able to win the business.

From the look of it, Top Glove is the Coca Cola of the glove industry.

My Opinion: Pass

Overall

Top Glove have a final score of 8/10.

With a high dividend yield which growths year-on-year, and payout ratio of less than 80%, I think this can be a great dividend stock.

But on the flipside, Top Glove’s growth seems to be due to the pandemic and is currently overpriced with high P/B ratio.

Personally, I think the demand of glove will not be that much affected as countries are now more hygiene focus, the demand will remain high for the next few years.

Below is how I’ve scored Top Glove.

My Top Glove’s Score Card
Metrics Weightage Score
Debt to Equity Ratio High (2) 2
Dividend Yield Low (1) 1
Dividend payout ratio Low (1) 1
EPS Growth Rate Low (1) 1
High Return of Equity (ROE) Low (1) 1
Acceptable Price-to-Book Ratio High (2) 0
MOAT High (2) 2
Total 8

Why do I find some metrics more important than others?

There are 3 attributes in a company that Warren Buffett wants in particular:

  • Wonderful Company at Fair Price
  • Stable & Understandable Business
  • Vigilant Leadership on Risk Management

This translate to the following 3 metrics I have in my list:

Thus, for these metrics, I will put a higher weightage in my scoring.

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Disclaimer/ Disclosure: I may or may not own some of these stock that is written in my website. I am NOT a Financial Advisor or a Lawyer. The content on this site, or YouTube channel, or any other sources are for educational purpose only. I merely cite my own personnel opinion and is not intended to be personalized investment advice. ​What I've written here is part of my online diary on my investing journey. The information might be wrong and inaccurate. You must conduct your own research and seek the advice of a licensed financial advisor if necessary. Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won't experience any loss when investing. I will not be liable for any loss you've make. You should always do your own due diligence and consider your financial goals before investing in any stock.

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