MIDF Research has updated the target price (TP) of Top Glove Corp Bhd to RM8.29 from RM1.96 previously, despite the company announcing a special dividend of 20% yesterday.
According to MIDF Research analyst Ng Bei Shan in his research note today, Top Glove needs to improve employee welfare as environmental, social and governance (ESG) considerations become increasingly important in sustainable investment.
“The problems faced by Top Glove have drowned out the ESG aspect and we think the company needs to take some time to fix it.
"Among other things, the company is committed to improving the housing of workers by providing a budget to buy or build better housing for them," he said.
According to Bei Shan, its estimated earnings per share remained unchanged at 43.8 sen for the financial year ended 31 August 2022 (FY22).
Although the new TP is 24.36% lower than before, it still represents 50.73% premium at the last closing price of RM5.50. Shares of the company along with three other glove manufacturing firms showed a decline since October 5 last year.
Bei Shan, however, maintained the ‘buy’ recommendation for Top Glove shares and raised the expected dividend per share (DPS) to 69 sen from 55 sen for the financial year 2021 (FY21) due to the high dividend payment rate.
In addition, he also stressed that although sentiment towards Top Glove was not good following the development of the Covid-19 vaccine distribution plan, Bei Shan revealed that the demand for gloves remained strong.
"Delivery time for nitrile gloves is expected to take more than a year. After all things considered, we believe Top Glove is on track to produce good results for FY21E, ”said Bei Shan.
