Thursday, October 27, 2016

TopGlove (Has Securities/Property Investment) .....STRONG

The company has been expanding not only its operations but also its investment 
in securities in the last two years (Till Oct 2016). The investment fund size was 
as high as RM669.67 mil at Aug 31 2015.

The glove manufacturer started investing in securities in 2014 with a fund size 
of RM154.32 mil and gradually, its appetite in securities grew.  

In the financial year ended Aug 31 2016, Top Glove divested RM285.75 mil 
worth of securities compared to RM47.01 mil in the previous year. Besides, 
it has also significantly reduced its purchase of securities to RM23.46 mil 
worth versus RM424.11 mil in the previous year.

Top Glove places most of the funds in local money market funds and debt 
securities quoted in Singapore. It estimates the current (Oct 2016) 
exposure to the bond and money markets amounted to about RM200 mil 
and RM250-300 mil, respectively.

These instruments provide Top Glove the flexibility to buy and sell with 
comparative ease. It explains the rationale of investing in these market
 instruments was to chase higher returns instead of having excess idle 
cash in its coffers. The money market funds generally provide a 3-4% return.

TopGlove’s investment in securities is viewed as a mild positive move
 that provides additional income.

Investors probably prefer Top Glove to plough the excess
 cash into increasing its capacity. It currently (Oct 2016) accounts for 
about one-fourth of global production. 

The glovemaker plans to look at deals worth up to RM1 bil as it seeks 
to expand its business through acquisition of local players. 

It is now  looking at valuations with several local firms that 
have expertise in making specialised rubber gloves for a niche market.

Nevertheless, it is in no hurry to clinch any deal and remains 
committed to organic growth by building production capacity. 
By May 2018, TopGlovewill have a total capacity of 58.8 billion 
pieces of gloves a year from its 27 factories against 46.6 billion 
pieces at the moment.

Apart from securities, Top Glove ALSO  INVEST  IN 

As of Aug 31 2016, the segment had a value of RM114.19mil, 
mainly attributed to its flagship Top Glove Tower in Setia City, 
Shah Alam.The company occupies two floors of the 23-storey 
building; the remaining space is leased out to generate a 6% 
rental yield per annum.

Apart from Top Glove Tower, the group’s property investment 
division has partial ownership of The Icon @ Tun Razak in Jalan
 Tun Razak, Kuala Lumpur. 

It appears that Top Glove’s founder and executive chairman Tan Sri 
Lim Wee Chai is also an avid property investor. In Sept 2016, Lim’s 
investment vehicle Cheerful Effect Sdn Bhd sold five storeys of 
stratified parcel of office space at Iconic Office in
EmpireCity@Damansara to My E.G. Services Bhd for RM31.74 mil.

Cheerful Effect is a property investment company established in 
October 2006. Its asset size has expanded substantially from 
RM33.05 mil in 2009 to RM107.1 mil in 2014.

It is believed Lim also owns properties in The Mines 2, PJD Tower 
and The Icon@Tun Razak in Jalan Tun Razak. These assets will
 likely be earnings-accretive in the future as they are all located in 
prime areas and offer good yield potential.

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