New source of growth for Top Glove, Evergreen shines


  • Business
  • Monday, 11 Jul 2005

Comment By C.S. Tan

10 Clicks To Victory ContestEvergreen Fibreboard Bhd is controlled by the Kuo family who were originally from Taiwan but who have since become Singaporeans.  

In Malaysia they have built the country's second largest producer of medium-density fibreboards (MDF). 

MDF is a resource-based industry that has flourished, and Malaysia is the largest MDF producer in South-East Asia. Most of the MDF players have, however, built new factories elsewhere in the region.  

Evergreen, as a listed entity, is a new kid on the block, having been listed just in March this year. It was soon forgotten, given the slew of new listings on Bursa Malaysia.  

Last week, however, it was re-discovered. RHB Research initiated coverage of the stock with a call of “outperform” and Affin Securities listed it as one of its top 10 picks for the second half of the year.  

What brought about this attention? To begin with, Evergreen had forecast a net profit of RM64.9mil or earnings per share of 13.5 sen for the year ending Dec 31, 2005.  

This means the stock is trading at a reasonable price-earnings ratio of eight times at its share price of RM1.08 last Friday.  

In addition, the company committed to a dividend payout of 60% of its earnings this year. This would work out to a total tax-exempt dividend of about 8 sen a share. This provides an attractive yield of 7.4%.  

On top of that, Evergreen could be growing its earnings in the region of 18% to 20% a year as it has made known its intentions of expanding its manufacturing capacity. The capacity expansion will largely be made in its plant in Thailand.  

This is a stock that offers yield, value and growth and a good company for the brokerages to promote. Of course, there is some liquidity in the stock, which also explains its interest. 

 

Rubber glove producer Top Glove Corp Bhd is one of the few companies in the country that have recorded uninterrupted profit growth - expanding earnings every year - over a span of 10 years.  

That record started with a pre-tax profit of RM3.2mil in 1996 and a forecast RM65mil this year. It now has a market capitalisation of about RM860mil; it's just a matter of time before that reaches RM1bil.  

Top Glove should be a matured company by now. But it says there is still a lot of room out there for it to capture a bigger share of the global market.  

Analysts accept that guidance. Their forecasts of earnings for Top Glove carry an annual growth rate of about 40%. It's hard to believe a matured company can continue to grow at such an awesome rate, but the company's executive chairman Datuk Dr Lim Wee-Chai continues to deliver.  

The company has just reported a 48% surge in net profit to RM14.8mil for the third quarter ended May 31, 2005. Small wonder then that brokerage G.K. Goh headlined a report that Top Glove is “a giant which is growing like a start-up.” 

Besides size, there is a new dimension to Top Glove's growth. This is in the form of a slightly different product - synthetic rubber gloves - which is manufactured at its plant in the Shanghai hinterland in China. 

The latest results statement shows China achieving an operating profit of RM3.7mil or 25% of the RM14.3mil earned from the group's natural rubber glove factories in Malaysia.  

More importantly, the Chinese plant's operating profit showed a quarter-on-quarter growth of 130% compared with a negative growth of 9% from Malaysian operations. Most of the earnings growth in the third quarter came from the synthetic rubber glove plant in China.  

The operations in Malaysia could, however, get back on the growth track as it continues to expand its production capacity in Klang.  

The next question is: After becoming the world's largest producer of natural rubber gloves, will it eventually also become the global top producer of synthetic rubber gloves? 

Property developer Tanco Holdings Bhd is a company of few words. In a brief announcement on Friday, it said it received approvals to its restructuring scheme from two other financial institutions - AmMerchant Bank Bhd and AmInternational (L) Ltd.  

With that, Tanco has received conditional approvals from 79% of its scheme creditors for its revamp scheme. The company did not elaborate further. 

It is believed that with this level of agreement from its creditors, it would require the support of a minimum of 75% to execute its restructuring exercise. 

The agreement of the creditors involves forgiving the company for RM166mil of its debts. This huge sum could be reported as an exceptional profit when the scheme is implemented and it will similarly be reflected in its balance sheet. This is expected to raise its net tangible assets from 42 sen at the end of last year to about 90 sen.  

Earlier, Tanco received support from Maybank and Hong Leong Bank for its scheme.  

The latest notice of support from the AmBank group seems to indicate Tanco has crossed the last barrier towards implementing its scheme. 

 EVERGRN :  [Stock Watch]  [NewsTOPGLOV :  [Stock Watch]  [NewsTANCO :  [Stock Watch]  [News]

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