KUCHING: Analysts at Macquarie Equities Research (MQ Research) believes the government could consider a windfall tax of about ten per cent for rubber glovemakers which would be “palatable to the sector and market.”
“MQ Research estimates a 10 per cent windfall tax on earnings would raise RM790 million from the top-four listed companies, which the government could use to cushion the six per cent fiscal deficit the government is estimating for 2020,” it said in a special note.
The research house suggested this following previous trends whereby the government imposed a one-off windfall tax of 30 per cent on the return on assets above nine per cent for independent power producers (IPP) in 2008.
The government had also imposed a windfall levy of 1.5 to three per cent on the plantation sector when crude palm oil (CPO) prices came in above RM2,500 per tonne and RM3,000 per tonne for Peninsular Malaysia and East Malaysia, respectively.
That aside, the Malaysian Rubber Glove Association (Margma) believes the chance that the government will impose a windfall tax is low given that the industry consistently reinvests earnings for capacity expansions and to create jobs for skilled workers, such as engineers.
According to Margma, the glove industry sees capital expenditure of RM0.6 billion to RM1 billion annually for expansion.
“For Top Glove Corporation Bhd, we estimate a 10 per cent windfall tax would reduce FY21E earnings by 12 per cent and would require our target PE to rise to 25 times from 23 times to maintain the current target price of RM30.40 – which we do not believe is a lofty ask,” it added.
“Even with a 10 per cent windfall tax, MQ Research’s FY21E earnings per share (EPS) estimate would still be 20 per cent above consensus.”
For Hartalega Holdings Bhd, MQ Research estimates a 10 windfall tax would reduce FY21E earnings by 13 per cent and require MQ Research’s target its price earnings value to rise to 53xtime from 51x to sustain the current target price of RM17.
“Even with a 10 per cent windfall tax, our FY21E EPS estimate would still be 25 per cent above consensus.”