KUALA LUMPUR: Integrated Rubber Corp Bhd (IRCB), which slipped into Practice Note 17 (PN17) in 2012, has seen a stirring of interest in its shares lately since the emergence of Keen Setup Sdn Bhd as a new substantial shareholder on Dec 17 last year with a 13.73% stake — the counter has gone up 12.4% or 7.5 sen to 68 sen on closing last Friday, with a market capitalisation of RM294.45 million.

Not only that, according to the latex gloves manufacturer’s executive director Sean Cheang, IRCB (fundamental: 0.95; valuation: 0.3), which has registered three consecutive quarters of profit since the first quarter of financial year 2015 (1QFY15), is anticipating the biggest improvement in profit margins in its financial year ending Jan 31, 2016 (FY16) as it ups capacity and production efficiency.

Consequently, the group, which is gearing up for a firmer foothold in the specialty and premium market, away from the hospital segment, is anticipating its revenue and earnings to improve in tandem in FY16, said Sean, son of the group managing director Cheang Phoy Ken.

“And as we continue to make cost reductions and efficiency improvements in our manufacturing, with new machines and the phasing out of old ones, we should definitely see an improvement in our margins over FY16,” he told The Edge Financial Daily in January.

IRCB fell into PN17 after it failed to service its debts. Keen’s emergence as a new substantial shareholder came about after it advanced a cash loan of RM22.4 million to the group in 2013, for which it was given 112 million shares or a 13.73% stake in December last year as repayment.

Subsequently, Keen was alloted another 7.5 million shares under the group’s regularisation plan, which brought its stake up to 15.82%.

Asked about Keen’s interest in IRCB, Sean only said that the company saw potential in IRCB.

“They are a group of shareholders who believe and have some prior experience in this industry, so they strongly believe that it is a good growth industry,” he said.

The RM22.4 million, together with a cash injection of the same amount by Phoy Ken, was used to completely repay the group’s RM44.8 million bank borrowings.

Interestingly, a month after Keen’s entry into IRCB, there was a change in the former’s shareholding, which resulted in Datuk Lau Eng Guang and his son Brian Lau Joo Kien emerging as substantial shareholders in IRCB, after they bought over Wang Lian Sea and Amnah Ibrahim’s stake of 68.5 million shares or 15.82% in Keen, and subsequently IRCB.

The group’s net profit in the nine months ended Oct 31, 2014 (9MFY15) was at RM1.6 million, a 115% improvement from its net loss of RM10.5 million a year before, while revenue went up 14.3% to RM113.2 million from RM99 million previously.

As at Oct 31, 2014, the group’s cash and cash equivalents stood at RM7.8 million, compared with RM30.8 million at the same corresponding period the year before. Bursa Malaysia filings showed the bulk of its cash pile had been spent on new property, plant and equipment.

“The original cost to recapitalise the company was RM44.8 million, then there was the remaining RM40 million from a previous rights issue exercise, which we have fully utilised for expansion and paying off other creditors,” said Sean.

Moving forward, Sean said IRCB is looking to become a specialty producer of gloves, targeting segments outside the medical industry, such as laboratory, cleaning and industrial applications.

As such, there would be more substantial investment for expansion over the next three to four years, said Sean.

IRCB had already announced one round of expansion in December 2014 at its wholly-owned subsidiary, Comfort Rubber Gloves Industries Sdn Bhd, during which it added more production lines to bring the unit’s total production lines to 27 from 19.

“So far we have completed six lines. We have two more lines which will be completed at end-January. That has added 35% to our production capacity, going up to 210 million pieces per month,” said Sean.

He also did not discount the possibility of the group building another factory in three to five years.

In a Bursa filing on Jan 30, IRCB said Sean and Phoy Ken had acquired a dormant company, I Quality Rubber Industries Sdn Bhd, “for future expansion in its core business in manufacturing and trading rubber gloves”.

As for outlook, Sean said the market was fairly upbeat, driven by the US recovery and the resilience seen in Europe.

“About 95% of our sales are in US-dollar denominated exports, so the prospects ahead are promising.”  

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This article first appeared in The Edge Financial Daily, on February 9, 2015.