Top Glove looking to seal M&A deal by August

by **Cals** Fri 08 Jan 2016, 00:04

Top Glove looking to seal M&A deal by August

By Meena Lakshana / The Edge Financial Daily | January 7, 2016 : 9:57 AM MYT

This article first appeared in The Edge Financial Daily, on January 7, 2016.

KUALA LUMPUR: Flushed with cash from a stellar financial year 2015 (FY15) and strong first quarter of FY16 (1QFY16) results, [size=16]Top Glove Corp Bhd ([You must be registered and logged in to see this image.] Valuation: 1.10, Fundamental: 2.70) is now on the prowl for mergers and acquisitions (M&A), and is looking to seal a deal by August.
Its chairman Tan Sri Lim Wee Chai said yesterday the company had shortlisted three local companies in the glove-related sector for an M&A exercise to be concluded within the company’s FY16 ending Nov 30, 2016.
“We have allocated RM100 million to RM1 billion for the M&A [exercise],” he told reporters after a briefing on the company’s 1QFY16 results.
“We are looking at the glove sector, printing, packaging and chemical sectors, and even the glove mould sector,” he added.
Top Glove’s net cash position was RM366.1 million as at end-1QFY16.
According to its FY15 annual report, Top Glove’s gearing as at Aug 31, 2015, stood at 30.53%, higher than 17.68% a year ago.
Although Wee Chai said the company is looking to fulfil the M&A with cash or bank borrowings, he did not discount the possibility of issuing shares to raise capital.
[You must be registered and logged in to see this image.]Wee Chai: We have allocated RM100 million to RM1 billion for the M&A [exercise]. Photo by Shahrin Yahya
For 1QFY16, Top Glove recorded an all-time increase of 163.6% in net profit to RM128.34 million or 20.64 sen per share from RM48.68 million or 7.85 sen per share a year ago, on the back of a strong US dollar and lower raw material prices.
Revenue rose to a record high of RM800.3 million, a 41% growth from RM567.6 million in 1QFY15.
Top Glove also saw its share price rise more than 200% since the beginning of 2015, overtaking Kossan Rubber Industries Bhd ([You must be registered and logged in to see this image.]Valuation: 1.10, Fundamental: 2.10) and becoming the second-largest locally listed glove producer in terms of market capitalisation behind Hartalega Holdings Bhd ( Valuation: 0.50, Fundamental: 2.30).
Wee Chai said with the exceptional results recorded by Top Glove, the pressure is on for the company to sustain its financial performance, as well as maintain and expand its market share.
“It is not easy to be at the top, and it is more challenging to maintain the top position,” he added.
He said as the US dollar is expected to remain strong, coupled with low raw material prices, competition is expected to intensify in the nitrile glove segment, as major industry players expand their capacity.
Currently, 31% of Top Glove’s sales volume is commanded by Europe, while 29% is held by North America.
Asia commands 19% of its sales volume, and Latin America 11%, the Middle East 7% and Africa 3%.
Top Glove is in the midst of expanding its plants in Lukut and Port Dickson, Negeri Sembilan, as well as Phuket, Thailand, which are expected to commence operations next month and in August respectively.
The company is also planning to set up a new factory in Klang, Selangor, with operations targeted to commence by February next year.
Once completed, Top Glove will have 26 glove factories in operation, with a production capacity of 52.4 billion pieces per annum.
Wee Chai said RM200 million had been allocated for capital expenditure in FY16.
Top Glove executive director Lim Cheong Guan said the company is targeting a 10% to 15% growth in sales volume, underpinned by increased competitiveness in Malaysia’s glove sector, on the back of a weak ringgit.
“Chances are very good that we can record a higher [profit] margin. The guidance we have received is 5% to 9% this year,” he added.
He also said Malaysia’s share of exports to the United States and Europe had increased significantly, compared with countries such as China, Thailand and Indonesia.
The company expects demand for gloves to grow at 6% to 8% annually.
Cheong Guan also said the company plans to reduce wastage, maximise mechanisation, improve automation and increase efficiency, but does not have plans to lay off its workers.
“As we have expansion of new factories, workers will be moved there,” he said.
So far, Top Glove’s increased mechanisation and automation efforts have resulted in savings in labour costs equating to more than 1,000 workers.
Labour costs make up 9% to 10% of its production costs.
Top Glove shares closed at RM13.88 yesterday, with a market capitalisation of RM8.58 billion.
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