Should I Buy Top Glove Stock (SGX: BVA) Right Now?
Disclaimer: I may or may not have invest in any of them, what’s listed here is only for entertainment purpose only and it should never be used as any form of investment advice. This is my diary on my stock analysis, while I’ve been investing for +15 years, I am still learning. I wish to share what I learn during my investment journey so you may learn from both my success and mistakes. Enjoy!
Right now Top Glove’s (BVA.SI / TPGC.KL) share price is at SGD$0.285
At this price, Top Glove is valued at a price-to-book ratio of 1.097 and a trailing distribution of 0.498 MYR (Approx 0.166 SGD)
With the current valuation, would I invest in it?
Let’s go through it using my 7 steps guide using fundamental analysis, let’s see how I pick the Best Singapore Dividend Stocks.
Disclaimer: Information should be used for entertainment purposes only. Full disclaimer below.
With the knowledge of understanding how to identify a good dividend stock, here are the 7 steps I use to pick the Best Dividend Stocks in Singapore.
- Debt to Equity Ratio
- Dividend Yield
- Dividend payout ratio
- EPS Growth Rate
- Return of Equity (ROE)
- Price-to-Book Ratio
- MOAT
Recommended Read: Warren Buffet’s 5 Characteristics of a Good Dividend Paying Stock
Business Background
Top Glove Corporation Bhd is the world’s largest rubber glove manufacturer. Headquartered in Malaysia, it has 48 factories, 812 production lines, and employed 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 worldwide:
- North America
- Latin America
- Europe
- Africa
- Asia
- Middle East
- Oceania
Top Glove Distribution
Source: Top Glove Corporate Presentation 2021
Products
- Nitrile Gloves
- Natural Rubber Gloves
- Surgical Gloves
- Condom
- Mask
Raw materials used:
- Latex
- Nitrile
- Butadiene
- Crude Oil
Debt-To-Equity Ratio
Check for: Less than 0.5 D/E Ratio
Looking at the latest annual report.
Top Glove have a D/E ratio of 0.016.
This is lower than the 0.5 D/E Ratio.
A D/E ratio of less than 0.5 will means that the company is not overleverage.
But as it has a D/E of less than 0.2 which is pretty amazing, a deep dive into the past data shows that the low D/E occurs after the onset of the pandemic.
I will probably guess that the pandemic, has positively impacted the company to increase its ability to generate higher revenue and income.
The company has a low risk of the company defaulting.
My Opinion: Pass
Dividend Yield
Check for: More than a 2.5% dividend yield
For the Year 2021, Top Glove pay a dividend of MYR 0.498 (1 SGD: 3.31 MYR) which translates to a dividend of 0.150 SGD.
But in the year 2022, there is no distribution of any dividend.
This is lower than my target of 2.5%.
Looking at the distribution history, there is a sharp increase from 2019 to 2021 in the number of dividends distributed year-on-year.
The years 2020 and 2021 are both years of the pandemic. There is a surge in the demand for surgical gloves, masks, and even condoms.
But as we are moving to the post-pandemic era, the earnings for the company decrease thus there is no distribution of Dividends.
It is lower than the risk-free rate (CPF OA Account) of 2.5%. I will give it a verdict of fail.
My Opinion: Fail
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 NA.
A payout ratio of more than 100% means the company is using borrowed money to pay its shareholder in dividends. A payout ratio of between 50% and 80% is recommended for dividend-paying stocks.
I personally think a payout ratio of NA means it fails.
My Opinion: Fail
EPS Growth Rate
Check for: More than 10% EPS Growth
Here, we will like to see an EPS growth of 5 years or more.
A quick check on the financial data.
The EPS 5 year growth rate is -8.325%!
Yup, the EPS growth for Top Glove is less than 0%!
My Opinion: Fail
High Return Of Equity (ROE)
Check for: More than 10% ROE
ROE is one of the most important ratios used by Warren Buffett.
Return on 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 3.24%!
A deep dive into the history shows that Top Glove has had >10% ROE from 2017 to 2020.
But as the recovery of the pandemic, the ROE decreases.
| Years | Return on Equity (ROE) |
|---|---|
| 2022 | 3.84% |
| 2021 | 116% |
| 2020 | 40.3% |
| 2019 | 14.8% |
| 2018 | 19.3% |
| 2017 | 17.1% |
The data shows that the ROE swings widely between 2019 to 2022.
It is possible that the ROE decrease is due to the decrease in demand for gloves etc. whereas, the sales decrease as many countries have an overstock of gloves.
My Opinion: Fail (For now)
Price-To-Book Ratio
Check for: a P/B Ratio of less than 1.8
Top Glove is the largest glove manufacturer in the world and is one of the component stocks of the FTSE Bursa Malaysia Mid 70 index.
Due to the pandemic, there is a high level of interest in the stock, which cause the stock price to shoot up to the roof in Aug 2020 to MYR 9.655. Subsequently, the price has fallen 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 footsteps of GameStop.)
With so much attention on Top Glove, the price of the stock will most likely be traded above its valuation (book value).
At the time of writing, the current P/B ratio of Top Glove is 1.097.
Meaning, it is trading at its book value.
My Opinion: Pass
MOAT
Check for: Not just having a MOAT, but a great MOAT
Top Glove is the largest glove manufacturer in the world with factories and distribution centers located worldwide.
Glove-making is more of a commodity.
The 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 set up their own glove-making factories.
But, not everyone has the infrastructure to distribute the products effectively and supply them worldwide.
- 48 Factories
- 7 Distribution hub
According to Phil’s book Rule#1 investing, Top Glove has 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, allows you to price your product higher than your competitors while still being 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 has a final score of 5/10.
With a high dividend yield that grows year-on-year and a payout ratio of less than 80%, I think this can be a great dividend stock.
But on the flip side, Top Glove’s growth seems to be due to the pandemic and is currently overpriced with a high P/B ratio.
Personally, I think the demand for gloves will not be that much affected as countries are now more hygiene focus, and the demand will remain high for the next few years.
Below is how I’ve scored Top Glove.
| Metrics | Weightage | Score |
|---|---|---|
| Debt to Equity Ratio | High (2) | 2 |
| Dividend Yield | Low (1) | 0 |
| Dividend payout ratio | Low (1) | 0 |
| EPS Growth Rate | Low (1) | 0 |
| High Return on Equity (ROE) | Low (1) | 0 |
| Acceptable Price-to-Book Ratio | Low (1) | 1 |
| MOAT | Very High (3) | 2 |
| Total | NA | 5 |
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 in Risk Management
This translate to the following 3 metrics I have on my list:
Thus, for these metrics, I will put a higher weightage on my scoring.
Would you invest in Top Glove now?
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Antony C. is a dividend investor with over 15+ years of investing experience. He’s also the book author of “Start Small, Dream Big“, certified PMP® holder and founder of IncomeBuddies.com (IB). At IB, he share his personal journey and expertise on growing passive income through dividend investing and building online business. Antony has been featured in global news outlet including Yahoo Finance, Nasdaq and Non Fiction Author Association (NFAA).
