Overview
Top Glove Corporation Bhd is an established Malaysia-based investment
holding company founded in the Year 1991 by Tan Sri Dr Lim Wee Chai and
Siew Bee Tong based in Shah Alam, which primarily involved as the
world’s largest rubber glove manufacturer in Malaysia, specialise in
both healthcare and non-healthcare segments.
TOPGLOV was listed in ACE Market in 2001 and successfully transformed
into Main Market of Bursa Malaysia on 16 May 2002. The group serves a
network of over 2,000 satisfied customers in more than 195 countries
worldwide, and these numbers are still increasing. Their complete range
of quality gloves at low efficient cost enables them to meet the needs
of the company’s ever-expanding customer base.
Presently, TOPGLOV has few manufacturing operations spanning across
Malaysia, Thailand and China. There are marketing offices in these
countries as well as USA, Germany and Brazil.
Business Model
Top Glove Corporation Bhd principally involved in the business segment
such as hand protection, sexual wellness, dental care and others.
TOPGLOV provides a comprehensive range of products such as latex
examination gloves, nitrile examination gloves, surgical gloves,
polychloroprene examination gloves, cast polyethene (CPE) gloves,
thermoplastic elastomer (TPE) gloves, vinyl gloves, cleanroom gloves,
household gloves, industrial gloves as well as non-gloves products such
as dental dam, exercise band and condom.
Most of the glove products cater to the medical profession, surgeon,
cleanrooms and industrial usage as well as aerospace, household, food
and beauty industries.
Financial Review
Based on the past 5 financial years of revenue chart above, the group’s
revenue grew years-on-years (y-o-y) from FY2015 (+10.33%), FY2016
(+15.06%), FY2017 (+18.03%), FY2018 (+23.81%) to FY2019 (+13.75%). On a
CAGR basis, TOPGLOV has grown 16.11% based on 5 years. The increase in
revenue was mainly due to robust growth in sales volume of nitrile
gloves segments which saw a 30% surge, enhanced the marketing efforts as
well as additional nitrile capacity which has increased by 54% over the
past 2 years, with the plan for further expansion. (Source: Annual
Report 2019).
Top Glove Corporation Bhd has successfully recorded a considerable RM41,627 million increase in gross profit, translating to a growth of 4.94% from RM842.4 million in FY2018 to RM884 million in FY2019. Based on 5 years CAGR basis, the group has grown 18.18%. The increase in gross profit was mainly attributed to 46% jump in volume sold for surgical glove segment which largely due to the contribution from Aspion and increases in demand for nitrile glove segment, which sales volume go up by 20.3% and 24% respectively chiefly by US and Japan. (Source: Annual Report 2019)
The Net Profit After Tax (PAT) of TOPGLOV has decreased 15.16% from RM433.2 million in FY2018 to RM367.5 million in FY2019. The decreased in Net Profit After Tax (PAT) was mainly due to the increase in latex concentrate prices, competitive environment for natural gloves as well as the losses occurred in the vinyl segment due to oversupply in China.
Cash Flow Statements
The net cash from operating activities has obtained a positive cash
flow of RM526.2 million in FY2019 compared to RM341.2 million in FY2018
indicates that the company is healthy and have enough cash used for
business expansion.
The net cash from investing activities in FY2019 is (-RM493.5 million)
was mainly due to purchase of property, plant and equipment (RM568.1
million), purchase of land use rights (RM55.6 million), purchase of
intangible assets (RM0.016 million), additions to investment property
(RM0.393 million), purchase of investment securities (RM138.4 million),
an increase in the bank balance pledged with banks (RM1.1 million). The
negative cash flow indicates that the company is investing in its
business to grow.
The net cash from financing activities in FY2019 is (-RM34.6 million)
was mainly due to the transaction cost incurred (RM0.086 million),
dividends paid on ordinary shares (RM217.4 million), dividends paid on
non-controlling interest (RM2.7 million), repayment of loans and
borrowings (RM1.2 billion).
Based on liquidity ratio calculation, TOPGLOV has a current ratio of
0.967 times in FY2019 indicates that the company may face some liquidity
issue if any unforeseeable circumstances forcing the company to settle
the current liabilities by using the current assets such as inventories,
other current assets, tax recoverable, investment securities,
derivatives financial instruments, trade & other receivables, cash
and bank balances amounting to RM1.5 billion.
Prospect and Challenges
The domestic rubber sectors are expected to be a bounce-back in FY2020,
as the US buyers will be likely to increase the Malaysian shipments as
well as 15% additional tariff imposed on medical gloves made in China,
effective from 1 Sep 2019. (Source: The Malaysian Reserve, 17Dec2019).
The expected robust growth is underpinned by an expanding of the global
healthcare sector as well as increased awareness of the importance of
hygienic practices throughout the industry, especially the emerging
markets such as India and China. (Source: TheEdge, 12Dec2019).
TOPGLOV will be in expansion mode as there is an influx of latex glove
supply from Thailand-based Sri Trang Agro-Industry Pcl aims to increase
the rubber glove output by about 74% to 30 billion gloves annually by
the end of FY2020 from 22 billion in the nine months of FY2019. (Source:
TheEdge, 12Dec2019). TopGlove also has date established a total of 4
R&D Centres staffed by some 454 researchers (as at FY19) from across
varied fields of expertise, working together to drive innovation and
breakthrough at Top Glove. (Source: Annual Report 2019).
TOPGLOV has set aside about RM100 million for land acquisition in the
country would be used for setting up the factories to produce vinyl
gloves. TOPGLOV also will open its first Vietnam factory to meet a surge
in demand for the hygienic gloves. As the construction of the plant has
started in Vietnam, it is done deal there and the operation would
commence in the first quarter of 2020. (Source: Daily Express,
21Mar2019).
In the year-end of FY2019, TOPGLOV has carried out large scale line
modification, key process improvements as well as intensive training for
factory floor personnel. They are also pleased to report that there is
no impairment loss required for the provisional goodwill arising from
the acquisition of Aspion as at 31Aug2019. (Source: Annual Report
FY2019).
TOPGLOV is also developing the eco-friendly gloves, the first if which
was their flagship green product, BiogreenTM Biodegradable Nitrile
Gloves (Powder Free), launched in June 2019. They also continue to
enhance their product portfolio with more specialised and cost-effective
surgical gloves, while diversifying into non-glove products such as
tourniquets. (Source: Annual Report FY2019).
Rating System
Return on Equity (ROE) = Average
Revenue [5 years CAGR] = Good
Net Earnings [5 years CAGR] = Average
Basic Earnings per Share [5 years CAGR] = Average
Interest Coverage = Average
My Insight
Based on my calculation on Discounted Earnings Model, TOPGLOV has a
fair value of RM8.40. The current market value of TOPGLOV is RM4.77
which is undervalued (Based on 23Dec2019). TOPGLOV has a beta of 1.020
(500 days) indicates that the company is more volatile than the current
market, which means the investors/traders are actively trading in this
stock, they may face a higher risk. Based on my computation of Compound
Annual Growth Rate (CAGR), TOPGLOV has an expected market return of
6.27%.
In conclusion, Top Glove Corporation Bhd has achieved an outstanding
performance for revenue in FY2019 due to the robust growth in sales
volume of nitrile gloves segments and capacity of nitrile segment
expansion. Even though the Profit After Tax has slightly decreased in
FY2019, I still believe that the company is well-positioned to tap on
the growing glove demand and prioritise R&D, innovation and Industry
4.0 initiatives.
Written by Stella Goh | 25 December 2019
http://academy.shareinvestor.com.my/2019/12/25/case-study-of-top-glove-corporation-bhd-7113/
