CIMB maintains Underperform on Top Glove (7113)

KUALA LUMPUR: CIMB Equities Research is maintaining its Underperform recommendation on Top Glove Corporation with a target price of RM4.20.

It said on Tuesday it took a dim view of Top Glove's purchase of a 30,000 ha greenfield rubber plantation in southern Sumatra as the RM400mil that it may spend on developing it over the next eight years could be put to more efficient use to enhance manufacturing and brand equity.

"To hedge the variability of natural rubber (NR) prices, a financial instrument would be more prudent and less capital intensive. This deal reinforces our Underperform rating.

"Our valuation basis remains 13.05 times CY13 price-to-earnings, based on its two-year historical average. Prefer Hartalega," said CIMB Research.

On Monday, Top Glove announced its sub-subsidiary,Best Advance Resources Ltd, will acquire 95% equity or 5,700 shares inPT Agro Pramata Sejahtera for RM22mil.

The company said it had entered into a conditional share sale and purchase agreement for the shares which would be satisfied via two tranches.

Top Glove said the proposed acquisition was expected to be completed within 15 months from the date of agreement or any later date as agreed by all parties.