MARC has upgraded Top Glove Corporation Bhd’s (Top Glove) corporate credit rating to AA+ from AA and concurrently affirmed its rating of AA-IS(CG) on special purpose vehicle TG Excellence Berhad’s RM3.0 billion Perpetual Sukuk Wakalah Programme. Top Glove, which owns 100% of TG Excellence, has provided a subordinated unconditional and irrevocable corporate guarantee on the perpetual sukuk. The ratings outlook is stable.
The rating upgrade is premised on the significant increase in Top Glove’s revenue and cash flow on the back of recording unprecedented sales of gloves resulting from the COVID-19 pandemic. The strong financial performance has led to a sharp improvement in the group’s overall credit metrics. The rating on the perpetual sukuk has been maintained to reflect its subordination to the group’s senior unsecured obligations. This is in line with MARC’s notching principles on subordinated debt and hybrid securities for entities rated AA and above.
For the first quarter ended November 30, 2020 (1QFY2021), revenue increased to RM4.8 billion while profit before tax rose to RM3.1 billion, exceeding the performance registered for the full financial year 2020. The higher earnings coupled with the full conversion of its USD200 million convertible bonds have strengthened Top Glove’s capital structure, leading to an adjusted debt-to-equity (DE) ratio of 0.17x at end-1QFY2021 from 0.95x in FY2019. Group leverage is not expected to increase over the medium term as its expansion strategy will be largely met by internally generated funds. Its capex plan is aimed at capturing market share in line with the industry growth forecast of between 15% and 20% over the medium term.
Notwithstanding the marked improvement in group performance, there are some concerns over foreign worker issues in the manufacturing industry. While these have led to restrictions on some of the group’s exports, MARC notes that the group is implementing measures to allay stakeholders’ concerns.