Wednesday, 6 March 2013

Top Glove - Buying East Wing of The Icon @ Tun Razak BUY

- In an announcement to Bursa yesterday, Top Glove Corporation (Top Glove) said that it will be acquiring the East Wing of The Icon @ Tun Razak for a total purchase consideration of RM226mil from T.S. Law Realty Sdn Bhd through a related party transaction.

- We understand that the transaction will be conducted through Value Add Sdn Bhd (VASB) , which would become an associate of Top Glove once it subscribes to both tranches of shares by June 2013.

- At present, TGSB has a 27% equity stake in VASB following the completion of its first subscription of 270,000 ordinary shares and 5,832,000 Class “A” Redeemable Preference Shares (par value RM1) on 28 February 2013. It is controlled by Top Glove’s executive chairman Tan Sri Lim Wee Chai (68%) and Mr Lim Hooi Sin (5%).

- The Icon is a freehold commercial property located along Jalan Tun Razak (near Embassy Row) with a net lettable area (NLA) of 267,907 sq ft. The 3-year old building has a 98% occupancy rate.

- Top Glove added that the acquisition will be internally funded through borrowings and equity subscriptions in VASB by its shareholders. Top Glove’s net cash position at FY12 stood at RM164mil.

- While we deem the purchase price of RM992/sq ft (based on NLA) to be fair given the valuation of Menara Maxis by Tanjong Plc in its books at RM925/sq ft in 2008/9, we are negative on this announcement as it indicates a departure from its core rubber glove manufacturing business.

- The subscription and acquisition do not need the approval of shareholders as it is less than 5% of the percentage threshold.

- No change to our BUY recommendation on Top Glove with a fair value of RM6.50/share (19% upside) for the moment as we seek clarification from management.

Source: Kenanga

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