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.
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.
- 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 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
Top Glove Distribution
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 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
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
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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