Short Positions - Top Glove, ESG

Better from less

SHARES of Top Glove have been slowly rising since the start of the month, partly down to an oversold situation in the stock and also the increase in global Covid-19 numbers.

As the number of Covid-19 cases rise, investors are betting that demand for gloves will not evaporate but yesterday’s rise of nearly 2% can be largely due to the decision by Top Glove to scale back on its share offering in Hong Kong.

The planned share offering had originally been a drag on the stock. Many were wondering why Top Glove will need to make such a large IPO in Hong Kong that will raise RM7.7bil.

Concerns of dilution of earnings was the biggest worry for investors that now number a large number for any stock listed on Bursa Malaysia.

The decision to cut down on the share offering was seen as a positive given the reaction from the market but the decision to scale down the share size for the Hong Kong listing was seen as a win for the larger institutions that hold Top Glove stock.

The dilution is now minimised but investors also know that the earnings per share of the group, after posting a record quarterly profit in Bursa Malaysia history, would still be above the historical trend.

Top Glove announced on Thursday it would downsize the Hong Kong IPO to raise RM4.22bil instead of a RM7.7bil as planned earlier.

About 60%, or RM2.49bil, of the proceeds would be used for the expansion of its production capacity and to develop a data-driven manufacturing system.

The group said the proceeds would also be used for research and development (10%), upgrading of various software systems and acquisition of information technology such as artificial intelligence and big data (10%), potential merger and acquisition and other investment opportunities (10%), environmental, social and corporate governance practices and initiatives (5%) as well as working capital and general corporate purposes (5%).

New world profit

MANY companies have been caught unprepared to deal with the Environmental, Social and Governance (ESG) issues that have now hogged the headlines throughout the world.

From news of countries banning fossil-fuel powered cars to the promotion of sustainable power sources, ESG covenants are increasingly becoming mainstream among investors.

Traditional utility companies are now seeing lacklustre foreign shareholder interest and for a defensive stock market like Malaysia, the challenge is to find enough companies in the much-in-demand businesses to make the capital market relevant to future investors.

The planters were the first to feel the weight of those concerns, with activists and later consumers and governments overseas putting demands on sustainable practices in that industry.

The realisation is that those ESG demands are not going to go away and will put pressure on a large number of companies that have for decades doing business the old fashioned way.

There is, however, profit to be made from that business. Companies engaged in the electric vehicle business like Greatec Technology Bhd reported a very strong rise in quarterly profit. In a business where more electric cars will be sold in the coming years, companies like Greatec stand a big chance in becoming a stellar performer on the stock exchange and deliver quality returns to shareholder.

The solar energy business is also one where there are a number of businesses venturing into. With coal-fired plants set to be phased out in the decades ahead and that will limit the rolling out of such important base-load energy plants.

That will present challenges and opportunities to companies in Malaysia as they start to figure out solutions to tomorrow’s problems.

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Apex Equity , Top Glove , ESG , Short Position , gloves ,


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