Tuesday, January 15, 2008

Regarding Top Glove share buybacks.

The Smart Investors wrote:

  • What do you think of Topglove's share buy back scheme. Seems every few days they buy back their shares. But doesnt seem to be affecting share price. As a company i really like Topglove and have taken their share buy back as a positive signal. Juz wondering what your thoughts on it might be.

Dear Smart Investor.

Here are some of my thoughts on this issue. (Do realise I am not a legal investment advisor, so do take my comments with a pinch of 'garam'. )

1. Regarding TopGlove share buyback.

In my opinion, I'm not too impressed with their share buyback program. I could be wrong but I do not see much point in initiating a share buyback based on the current prices for I do not see much value in doing so and I would certainly question why the need for it. Perhaps money could be utilised much better.

For starters, Top Glove's cash flow is weak and if you look at their recent announced quarterly earnings, you would see that their cash balances is much weaker if you compared to the previous year.

And amidst their rather insane everlasting global capital expansion (yes, I am not a fan of their continuous expansion over all these years.) Top Glove is a company which is in a nett debt position. And when you have more debts than cash, I am simply not in favour of such a corporate exercise.

2. Buybacks not affecting the share price.

Not all buybacks works. Some fail. Do read Dali's truly brilliant article on Why buybacks fail.

Hence, I ask you in return. Are you really expecting the share price to increase?

3. Regarding Top Glove.

I have posted before quite a number of postings on Top Glove ( See this posting: Top Of Ze World: VIII. It include links to other Top Glove postings) and I am sorry but I am not a fan of this company and I do see some valid reasons to be sceptical. For example, I seriously believe Top Glove has over-expanded and I am sceptical if the company can truly manage their expansions in a profitable manner. And then you have the rising costs issue. Rising fuel and high rubber prices simply means higher cost. And last but not least, I could be wrong but Top Glove's sales are predominantly in the US Dollar. And a shrinking US Dollar will have a huge impact on Top Glove profitability.

Hope my thoughts help as a second opinion.

rgds

9 comments:

cHeekIN said...

Moola,

Although i enjoyed your blog all this while, i am confused when you point out topglove is a net debt company. I downloaded the latest balance sheet of top glove from bursa, and extract these figures:
Current asset = 466 mil
Non-current asset = 587 mil
Current liability = 257 mil
Non-current liability = 159 mil.

As i can see the current asset itself already more than total liability (current + non-current), can you tell how you deduced that top glove is a "net-debt" company? thanks in advance.

Moola said...

hello Cheekin,

Here is a simple exercise.

Open TG's latest quarterly earnings.

1. What is their total cash balances? ( I see 137.890 million)

2. What is their total loans? ( I see total group borrowings at 181.366 million)

My definition of a net debt company is a company which has more loans than its CASH balances. What is your definition?

rgds

The Smart Investors said...

Thanks moola for that full article reply. Really appreciated it. I actually like TopGlove's business and had bought some shares a while ago. But share price juz kept loosing steam whatever they did. And then there was this crazy share buy back every few month/weeks/days. Sold it on a loss. I had gotten it at RM6.35. Only had a chance to sell it recently.

cHeekIN said...

Moola,

Thanks for your reply, i think your point is valid. I'm a newbie in investment and you really shed some light to me. I only have one additional point, ain't it common for company to borrow debt in financing their business? But i will sure be pay more attention not to fall into pitfall for this counter. Thanks again.

Moola said...

Hello Cheekin,

>>I only have one additional point, ain't it common for company to borrow debt in financing their business<<

Yes, it's common companies borrow to finance their business activities.

There's nothing wrong with such an exercise.

However, let's us not forget that we, the investors, we need to look from our perspective and not from the company perspective and judge whether we see a healthy business or not.

Here we have a company, which has more debts than its cash. Cash flow is depleting. And what does the company do? It attempts to defend the share price via share buybacks.

So from an investor perspective, how would you gauge such an acitivity?

Do you think it is healthy?

Rgds

ccdev said...

Moola,

please dont tembak me, i'm just trying to clear my confusion.
You said "For starters, Top Glove's cash flow is weak and if you look at their recent announced quarterly earnings, you would see that their cash balances is much weaker if you compared to the previous year."

but from the financials, the cash flow from operations has increased from rm118m to rm159m, and overall bank balance is 165m from 59m.

where am i going wrong? thanks in advance.

Moola said...

ccdev,

I made reference to TG's latest quarterly earnings posted here: http://announcements.bursamalaysia.com/EDMS/annweb.nsf/LsvAllByID/482568AD00295D07482573C500322917?OpenDocument

Do have a look.

rgds

Moola said...

ccdev,

Link not shown correctly. Do see the announcement posted on 3rd Jan 2008.

rgds

ccdev said...

ok, moolah. thank for pointers!