PublicInvest maintains trading sell on Top Glove post-analyst briefing

KUALA LUMPUR: The legal action taken by Top Glove Corp Bhd towards the directors and former parent company of Aspion concerns an overstatement of RM74.4mil in assets and an overvaluation of RM640.5mil, said PublicInvest Research.

"The conflicts started from the discovery that Aspion’s balance sheet items was not in accordance to what was reported pre-acquisition in VDR and unrealistic profit target set by Aspion’s directors," said the research house, which had attended an analyst briefing by Top Glove to clarify the issue

PublicInvest also noted that the profit guarantee was no longer valid as Top Glove had taken full control of Aspion. 

According to the research house, irregularities in certain balance sheet items of Aspion, especially inventories, plant and machinery was discovered by Top Glove shortly after it took over Aspion post-completion of the sales and purchase agreement.

An independent accounting firm was appointed by Top Glove to investigate the irregularities in Aspion's accounts.

"The overvaluation was derived using the annualised net profit of c.RM40m for FY18 based on Aspion’s actual 7-month performance as it was later found out that Aspion’s profit target of RM80.9m for FY18 and RM108.3m for FY19 were impractical and unachievable under the helm of Aspion’s management after evaluating Aspion’s operations. 

"Pegging to a 16.9x PER which was used to derive previous’ acquisition price, it
believes that Aspion was overvalued by RM640.5m or 52% of the paid acquisition price." 

PublicInvest also noted that Aspion's two-month net profit contribution to Top Glove post-acquisition was only RM7mil, which was far behind the profit target of RM80.9mil for FY18.

However, it said Top Glove has highlighted there is nothing wrong with Aspion's operations and products and litigation will not impact the business operations, which will continue as usual.

The research house maintained its trading sell call on the stock with a lower target price of RM9.65 from RM10.65.

It believes the stock performance will remain weak given the uncertainties and downside risks of the legal issue, such as risk of impairment, long-drawn litigation process and lawsuit fees.