Top Glove targets 20% to 30% sales growth for FY16

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This article first appeared in The Edge Financial Daily, on March 17, 2016.



KUALA LUMPUR: Top Glove Corp Bhd has targeted a sales growth of 20% to 30% for the financial year ending Aug 31, 2016 (FY16). The glove maker is also eyeing one or two merger and acquisition (M&A) opportunities amid intensified competition in the nitrile glove segment as major industry players expand their capacity.

Managing director Lee Kim Meow welcomed the stronger competition, saying the more efficient player will stand out.

“Top Glove has been focusing a lot on improvements in efficiency with continuous upgrading of existing production lines, [our] newest factory equipped with advanced technology production lines, and improvement in manpower efficiency with automation and re-engineering,” he said in a conference call yesterday after the company announced its second quarter ended Feb 29, 2016 (2QFY16) results.

The improvement in efficiency could be seen from the rise in the average number of gloves produced by each employee per year. The output in FY15 was 3.76 million pieces per employee against 3.08 million pieces per employee in FY13, a growth of 22.08%.

In the first half of FY16 (1HFY16), it improved further to 3.84 million pieces per employee while the industry only managed 2.5 million pieces, Lee said.

Top Glove, the world’s largest maker of natural rubber gloves, earlier announced its 2QFY16 results that saw net profit surge 86.6% to RM104.61 million or 8.36 sen per share, from RM56.07 million or 4.51 sen per share in 2QFY15. Revenue rose 21.3% to RM693.86 million, from RM572.25 million previously.

Lee said the outlook is optimistic based on the growth in 1HFY16, whereby there was a 31% growth in sales to RM1.49 billion from RM1.14 billion in 1HFY15. Net profit, meanwhile, more than doubled to RM232.96 million from RM104.75 million in 1HFY15.

While the competition in the nitrile glove segment has grown, Top Glove is confident that the demand is still very good and the double-digit growth could be sustained.

“The group is resilient to external economic turmoil as 80% of our products are for the medical sector,” Lee added.

Lee also mentioned that there will be minimal impact from the hike in the minimum wage. Given that labour costs represent about 10% of expenses, the 10% hike in the minimum wage will translate into an increased cost of about 1%. The ongoing improved automation will offset the effect of the hike, he added.

While there has been an increase in the price of raw materials recently, Lee said, there will not be a rise in the average selling price unless the upward trend is definite. “This is to ensure there will be minimal interruption for our customers,” he said in reply to a question during the conference call.

On its M&A opportunities, Lee said that the group is always open to M&As and is in negotiations at this stage. He added that the company “should be able to acquire one or two glove companies this year”.

In the conference call, Lee also said that the secondary listing of Top Glove on the Singapore Exchange will give shareholders the option of transferring their shares to Singapore to trade and vice versa.

He is optimistic that this will enhance Top Glove’s investor reach and diversify its investor base.

The listing in Singapore is expected to be around the end of June tentatively.

At the close of trade yesterday, Top Glove shares were down by 12 sen or 2.26% to RM5.20 with 8.017 million shares traded.