Will Shareholders benefit when Top Glove spend Rm 310 million on share buyback?

Koon Yew Yin 22 Sept 2020

On 4th Sept Top Glove spent Rm 210 million to buy back 31 million shares at Rm 6.12 -Rm 8.00 per share.

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On 21 Sept Top Glove spent Rm 99.8 million to buy back 12.5 million shares at Rm 7.85 -Rm 8.00 per share. 

After spending Rm 310 million to buy back its own shares, the current price is still about Rm 8.00. 

It is every business man’s dream to build up his company to qualify for listing in the stock market. The listed status is like securing a licence from Bank Negara to print money. The controlling shareholder must know how to use this licence to print more money to benefit all the shareholders. He can place out more shares when the share price has gone up to secure more cash to expand the company. He can also issue more shares to make acquisition. 

IJM issued shares to make acquisition.

About 30 years ago when I was still a director of IJM Corporation Bhd. our company issued shares to acquire a non-listed company namely, Road Builders Sdn Bhd. which owned large tracks of land in Seremban. That was how IJM started the development of townships called Seremban 1 and Seremban 2 township. IJM eventually listed another company called IJM Land Bhd.  

The management of Top Glove must realise that it is counterproductive to buy back its own shares: The following are reasons why the company should not spend so much money to buy back its own shares. 

1 to support the share price artificially is only temporary. 

2 to create publicity and propaganda to encourage more investors to buy its shares is also temporary.  

3 management did not realise it is counterproductive to buy back its own shares. 

4 as shown in the company’s account, it still has huge amount of bank loan. The money should be used more effectively to benefit shareholders by reducing the bank loan to save interest charges. 

5 the money should be used to expand its manufacturing facilities, to improve its management and marketing teams to make more profit for shareholders. 

6 the money should be given out as dividends to shareholders. 

Most investors are not so easily misled by the propaganda. It is like pulling wool over investors’ eyes.

I hope Top Glove will not spend any money to buy back its own shares. Top Glove management should know that among all the stock selection criteria such as NTA, cashflow, healthy account with cash deposits in the bank, increase revenue etc, the most important and most powerful catalyst to push up the share price is the profit growth rate of the company. According to Top Glove’s latest quarterly report, its profit growth rate is less than Supermax. That is why the price of Top Glove has gone up slower than Supermax.  

The Performance of the glove stocks in the last 6 months: 

1 Supermax went up from 80sen to close at Rm 7.60, an increase of 950%. 

2 Top Glove went up from Rm 1.80 to close at Rm 7.98, an increase of 433%. 

3 Kossan went up from Rm 4.50 to close at Rm 12.08, an increase of 268%.

4 Hartalega went up from Rm 5.30 to close Rm 14.16, an increase of 267%. 

I hope this article will help investors make good investment decision. 

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