I called uncle again (he has more than 30 years’ experience). We talked about the drop in glove counters yesterday whether it is an opportunity to buy in the market. I call him Sifu or master in English. Some of the things that he told me are as below:
Sifu told me TOPGLOV bottom is RM25
Sifu said TOPGLOV can fetch RM34
Sifu said buy and wait for 3 months. Don’t contra and don’t buy on margin
1. Sifu told me TOPGLOV bottom is RM25
Sifu: Seriously? In that case, next quarter earnings should triple because GPP up by 10% and volume +15%. Why can triple? Some company with 5% GPP increase already double… So 10% means triple.
So RM348m * 4 = RM1044m round it down to RM1000m for easy calculation
One year profit = 1044*4 = RM4176m
No of shares 2710m
One Year EPS = RM1.54
Minimum Index stock PE? 16x… Index member on average can fetch 18x PE but in crazy market sometimes you can get 16x PE for super high growth stock. By earnings increase, Top Glove is ranked No 1 out of all 30 stocks. So if trade at 16x (a discount of PE) is really crazy.
So Minimum price = RM1.54*16 = RM25
2. Sifu said TOPGLOV can fetch RM34
Me: How much is Top Glove worth?
Sifu: (Move his finger here and there). RM34.
Use 22x PE to RM1.54 EPS, you will get RM34.
Why 22x PE? Because average 10 years earnings growth is minimum 22%. Especially this year it can easily achieve 100% and next year another 100% so 22% in 10 years can achieve
3. Sifu said buy and wait for 3 months. Don’t contra and don’t buy on margin
Me: How about vaccine? People told me we are going to have it soon!
Sifu: I have answered you previously about vaccine. We have to be humble and don’t simply assume that this vaccine or that vaccine will save us all in a short time. I don’t know about vaccine date but to take care of downside, the RM1044m sustainable earnings already take care that one day Gloves Physical Price (GPP) will decline. But from now until that day, GPP will still go up. So it average each other you see.
Full details:
Me: Gloves share price is very volatile, it has declined quite a lot. Is this the end?
Sifu: Remember that famous quote “the stock market is a manic depressive”?. Instead of giving you a straight answer. Let me ask you… is COVID-19 case increasing or decreasing?
Me: Increasing. But I heard that vaccine will be ready soon !
Sifu: Wait first, what is the reason that glove sector share price gone up so much ?
Me: Because gloves price increase.
Sifu: You asked me the same question before this and now you are giving me the same answer. So now is Gloves Physical Price (GPP) still increase?
Me: As COVID cases still going up, I think gloves price still increase.
Sifu: Sounds logical. So do you agree next quarter earnings will still go up?
Me: Yes.
Sifu: For how long ?
Me: I don’t know. Some people say vaccine is coming out soon. LIKE SUPER SOON.
Sifu: Vaccine out do you think it straight away magic and appear to everyone in the world?
Me: No
Sifu: The last time you spoke to me, I told you I predict COVID-19 cases will surpass 23.25m in 7 to 10 days.
Me: YES YES Sifu ! It breached 23.25m on Sunday.
Sifu: Yes, so it is straight forward gloves price should go up.
Me: So what is Top Glove bottom?
Sifu: RM25. Last quarter they made RM348m. Top Glove EGM slides mentioned that their capacity is already expanded to 85bn pieces from 73.8bn pieces annually last quarter. This means volume already up 15%. For Gloves Physical Price (GPP) , let us calculate number of COVID cases from 10.5m to 24m, this is about 130% in the past 3 months. Last time you told me you have friends working in US right? Why not you check how much Gloves Physical Price (GPP) has gone up?
Me: (Made a call and after 30 minutes call back sifu)…
Me: Yes sifu, my friend who work in US said anything nitrile gloves they can get, they will just pay as long as the hospital budget is there. Gloves is just small component of PPE. It is life and death situation so paying USD1 per day per person for healthcare workers is totally not an issue. I ask him if someone raise price by 15% or 20% a month, will it be too much? He said no.
Sifu: Seriously? In that case, next quarter earnings should triple because GPP up by 10% and volume +15%. Why can triple? Some company with 5% GPP increase already double… So 10% means triple.
So RM348m * 4 = RM1044m round it down to RM1000m for easy calculation
One year profit = 1044*4 = RM4176m
No of shares 2710m
One Year EPS = RM1.54
Minimum Index stock PE? 16x… Index member on average can fetch 18x PE but in crazy market sometimes you can get 16x PE for super high growth stock. By earnings increase, Top Glove is ranked No 1 out of all 30 stocks. So if trade at 16x (a discount of PE) is really crazy.
So Minimum price = RM1.54*16 = RM25
Me: How much is Top Glove worth ?
Sifu: (Move his finger here and there). RM34.
Use 22x PE to RM1.54 EPS, you will get RM34.
Why 22x PE? Because average 10 years earnings growth is minimum 22%. Especially this year it can easily achieve 100% and next year another 100% so 22% in 10 years can achieve.
Me: How about vaccine? People told me we are going to have it soon!
Sifu: I have answered you previously about vaccine. We have to be humble and don’t simply assume that this vaccine or that vaccine will save us all in a short time. I don’t know about vaccine date but to take care of downside, the RM1044m sustainable earnings already take care that one day Gloves Physical Price (GPP) will decline. But from now until that day, GPP will still go up. So it average each other you see.
https://klse.i3investor.com/blogs/feliciawong/2020-08-26-story-h1512539718-TOP_GLOVE_TOPGLOV_How_Low_Can_Share_Price_Go.jsp
