Trend analysis based on rainbow average
Comment:
JP Morgan said fair value RM3.5 which is in line with the trend analysis. We cannot fortune telling it will hit RM3.5 or not but the primary long term downward momentum is pointing towards that direction after the short term counter trend bear rally is over.
Comment:
Some analysts awarded Topglov fair value RM50 (or RM100 before the share split) actually is totally out of imagination. Analyst just a number cruncher with the dangerous side effects of garbage in and garbage out. They are not businessman so they don't think like a businessman and mostly think like an excel worksheet and don't know it is real difficult tasks to manage a large group of labor and their living conditions. To push the price to RM50 we will need to convince long term value investors to believe the fair value RM50. A simple calculation will prove that this is mission impossible. For educational purpose, we use bluechip standard PE15x as an example. At RM50 with PE15x, we are talking about EPS of RM3 and multiply RM3 by Topglov issued shares of 8b we are talking about a Net Profit of RM24b so this really looks like a science fiction movie. Unlike tech sector, glove sector is a labor intensive industry or an economist will say the additional cost of production will be getting more expensive without economies of scale. If Topglov aimed to produce RM24b net profit, they will need to fully automate their production lines but that will cost a lot of upfront capital investment and may not be able to recover the invested capital as the pandemic will soon be over with the availability of vaccine. JP Morgan is correct to say the supernormal cycle has already over.
