Top Glove scales back expansion plans

Top Glove scales back expansion plans
Business & Markets 2014
Written by Fatin Rasyiqah Mustaza of theedgemalaysia.com
Friday, 21 March 2014 10:53

KUALA LUMPUR: Top Glove Corp Bhd will scale back its capacity expansion amidst the global oversupply of rubber gloves, which has resulted in a fall in the average selling price.

In a tele-conference call, chairman Tan Sri Lim Wee Chai told the media that the average selling price had fallen due to the oversupply of rubber gloves which had affected Top Glove’s performance.

Lim noted that as the competition becomes tougher from local and foreign peers such as Indonesia, Vietnam and Thailand, Top Glove had to lower its prices.

Since Jan 1, Top Glove has raised its selling price for its rubber gloves by 20 sen to US$20.20 (RM66.60) per carton of 1,000 gloves from US$20 previously.

“Now the capacity in the market is at an oversupply so we will slow down our expansion but will still expand, just as [what was planned] before,” said Lim.

Top Glove currently has 23 factories that produce 41.3 billion pieces of gloves per annum.

The group is in the midst of constructing an additional two factories, which are expected to increase its capacity by 43.5 billion pieces of gloves per annum. The two new factories — which are located in Lukut, near Port Dickson Negeri Sembilan, and Klang, Selangor —are expected to be completed by the end of the year. Initially these factories were slated for completion in May and August this year, respectively.

“This is just a temporary setback which will make us work harder and better to optimise our operational productivity, enhance our cost efficiency and upgrade our product quality,” said Lim.

He said the group had also delayed the expansion of its factories due to the changes in design of the production line, which is now longer than the original.

“This will enable us to move faster and we will be more efficient in production and also in terms of arrangement in electricity supply as well,” Lim said.

The world’s largest rubber glove maker reported a 17% dip in net profit in the second quarter ended Feb 28 to RM41.5 million from RM50.31 million, while revenue fell to RM548.3 million from RM576.4 million. For its first half ended Feb 28, its net profit declined 14.81% to RM91.83 million from RM107.8 million a year ago. Revenue stood at RM1.12 billion compared with RM1.16 billion.

The weaker performance was on the back of margin pressure from increased competition and losses from its China operations which amounted to RM5 million. Foreign exchange losses also contributed to the weaker performance.

Commenting on the electricity tariff hike, executive director Lim Cheong Guan said the increment had resulted in an additional RM600,000 to RM700,000 operational costs per month.

“Even though in terms of percentage it is only 0.4% of the total manufacturing costs but for example in the second quarter there was an additional RM1.2 million electricity cost due to the increased tariff,” said Cheong Guan.

On whether the group has been affected by the current water rationing exercise, Cheong Guan said that only its factory in Banting is experiencing water shortages. The group had to outsource water but this has a minimal reflection on its financials as the purchase of water is less than 1% of its operational costs.


This article first appeared in The Edge Financial Daily, on March 21, 2014.