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1 Thing Not to Like About Top Glove Corporation Berhad

Founded in 1991, Top Glove Corporation Berhad (SGX: BVA) is today the world’s largest rubber gloves manufacturer. Its gloves are used in the medical, food, and general industrial sectors, among others. The company, which has a primary listing on Malaysia’s stock market, was dual-listed here in Singapore in June 2016.

Since its dual-listing, shares in Top Glove have ballooned more than 110% to close at S$3.99 apiece yesterday. In comparison, the Straits Times Index (SGX: ^STI) has “only” risen by around 18%.

The astronomical rise in Top Glove’s shares is not surprising given that its net profit had grown from RM279.8 million in 2015 to RM328.6 million in 2017 (the firm’s year ends on 31 August each year). This gives a compounded annual growth rate of 8.4%. Over the longer term, from 2011 to 2017, earnings had improved 19.5% per year.

Despite Top Glove’s strong numbers, there is one thing to be wary of about its business, and that is its debt-laden balance sheet.

As of 31 May 2018, the firm had total borrowings of RM2.1 billion and just RM190.9 million in cash. If we add investment securities to the mix, its cash and investments were at RM439.3 million. This translates to a net-debt-to-equity ratio of 71.9%.

In comparison, at the end of August 2017, Top Glove had RM376.4 in total borrowings, with RM240.1 million in cash and RM206.9 million in investment securities. This gives a net-debt-to-equity ratio of -3.5% (the negative sign means that there were more cash and investments than debt).

The increase in the net debt position of late was mainly due to the acquisition of surgical gloves maker, Aspion, in April 2018. Investors have to keep an eye on whether Top Glove can bring down its debt levels to a more manageable one in the years ahead, after integrating Aspion into its operations.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Top Glove Corporation Berhad. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.