This article first appeared in The Edge Financial Daily, on March 24, 2016.

Top Glove Corp Bhd
(March 23, RM 4.91) 
Trading buy with a target price (TP) of RM7.63: Top Glove Corp Bhd announced a joint venture (JV) with DHS Emergency Asia Sdn Bhd on Tuesday. The JV company plans to acquire TG GD Medical Clinic Sdn Bhd with an initial cash consideration of RM400,000, and is expected to complete the transaction by the first financial quarter ending Nov 30, 2016 (1QFY17). With no impact on earnings expected, our estimates are kept unchanged. 

Top Glove’s wholly-owned subsidiary Top Glove Sdn Bhd entered into a JV with DHS Emergency Asia to provide clinical and specialist medical services in Malaysia. The JV company is formed with an initial consideration of RM400,000, of which RM300,000 is contributed by Top Glove and the remainder by DHS. Upon commencement of the JV company, an additional consideration will be contributed by both parties up to RM2 million. Top Glove will hold a 75% stake, while the remainder will be held by DHS.

The JV company is formed primarily to provide medical facilities for its employees. 

Global Doctors Malaysia has agreed to grant its sole and exclusive transferable rights, licence and privilege of using intellectual property (IP) and know-how to the JV company by receiving a mutually agreeable fee. The IP and know-how include branding, quality standard operating procedures, policies and software.

This exercise will not have any material effect on Top Glove’s business, as this is mainly for the benefit of its employees. Cost savings aren’t quantifiable at this juncture, though not expected to be material. Hence, our earnings estimates are kept unchanged.

We maintain our “trading buy” call on Top Glove with an unchanged TP of RM7.63, on the back of (i) robust demand for rubber gloves with 6% to 8% growth rate, (ii) continuous cost- efficiency enhancements, and (iii) upcoming new capacity. — PublicInvest Research, March 23