KUALA LUMPUR: Mixed news from Top Glove Corporation Bhd, which revised its average selling price (ASP) lower in April and also the year-on-year sales volume growth of three per cent in North America, four per cent in Asia and the off-setting five per cent decline in Europe, earned the company a neutral call from HLIB Research, with a target price of RM5.20.
The research firm notes that Top Glove's management expects the Asian market to be the growth driver in future, with China spearheading a spike in demand thanks to their increased affluence and lifestyle changes (e.g. healthcare, food preparation).
Additionally, the firm writes in its company insight report that Top Glove plans to enter the condom business.
"Given the similarity in technology and higher margin business, management signalled their intentions of entering the condom business. The group targets to establish their factory within the Klang vicinity and reach markets within a years’ time.
"We are of the opinion that, while the condom business would complement their existing business; in the near term, challenges facing the condom sector includes a consolidating global industry and consequently issues relating to demand," it explained.
A particular risk to bear in mind is the further reduction in ASP amid steep competition in the business.
Axiata Bhd also received a buy call with a target price of RM4.65 from HLIB Research in its notes today on news of the telco acquiring towers in Pakistan for RM385 million via internally generated funds.
"edotco Pakistan (wholly-owned subsidiary) has entered into an agreement with Tower Share (Private) Limited to acquire 100 per cent of its subsidiary, Tanzanite Tower Private Limited (TTPL) for a cash consideration of US$90 million (RM385.4 million).
"TTPL owns 700 towers providing tenancies to all major cellcos in Pakistan with a strategic split of 97 per cent urban and 3 per cent rural.
"This will strengthen its position to accelerate tower build out and take advantage of further acquisition / consolidation opportunities towards achieving its ambition to be the largest independent tower company in Pakistan," HLIB Research explained in its newsbreak report.
The deal, expected to see completion in 3Q17, is subject to regulatory approvals.
HLIB Research is positive on Axiata's Pakistan deal as that country has a huge population and currently has low mobile smartphone penetration rate which could potentially lead to strong growth in smartphone penetration which will boost average revenue per user (ARPU) for the company.
As for funding the deal, HLIB Research wrote that cash is not a concern as the company is supported by a war chest that has been injected by new investors like Innovation Network Corp of Japan (INCJ) and Retirement Fund Incorporated (KWAP), with US$400 million and US$100 million, respectively.
Meanwhile, education player Sasbadi Holdings Bhd gets a buy call with a atrget price of RM1.73.
"Sasbadi Holdings has proposed a 1-for-2 bonus issue of up to 139.7 million new ordinary shares of Sasbadi Holdings, while the proposed bonus issue will not have an impact on Sasbadi’s fundamentals, we view the bonus issue positively as it enhances the liquidity of the stock.
"The proposed bonus issue will be wholly capitalised from the share premium account of Sasbadi Holdings at 25 sen per bonus share," the research house wrote.
It said that Sasbadi plans to acquire at least one publishing company per annum to gain higher economies-of-scale.