TOP GLOVE CORPORATION - the world's largest rubber glove maker is concerned about the weakening USD said ED - LIM CHEONG GUAN who was quoted in THE EDGE FINANCIAL DAILY in early Aug 2008. TOP GLOVE has also denied that it will miss its Net Profit target for FYE Aug 2008.

The Company had posted a 12-year-high Net Profit of RM103m in FY07.

The Company is targeting to pay a total dividend of 22%, or 11 sen per share, in FY08 against 20% or 10 sen per share in FY07. As of May, 2008, the Company had declared an interim dividend of 10%, or five sen per share.

LIM was quoted saying that the Company is most likely to fall short of its targeted RM1.55 bil in revenue, expecting instead to reach RM1.4 bil. However, he believed that its performance in FY08 would still be better than that in FY07.

Cumulative revenue for the nine months breached RM1 bil in FY08 compared with RM921.22 million a year earlier. It posted a record revenue of RM1.23 billion in FY07. The Company controls 25% of the global rubber glove market.

CAPACITY UTILISATION REDUCED
In line with the uncertain market, TOP GLOVE has reduced its capacity utilisation to 80% from more than 90% previously. However, LIM said the reduced capacity utilisation had not affected sales growth.

He added " .... We are not as aggressive as last time. We are cautious about the market situation and have slowed down our production rate. Some factories are not fully operated ...".TOP GLOVE has an annual production capacity of 30 bil pieces of gloves.

" .... We are an original equipment manufacturer, and weproduce gloves based on customers' requirements. It is unlikely for us to see reduced demand, as gloves are a necessity in some industries ...." LIM said.

EXPORT MARKETS
TOP GLOVE exports its products to 180 countries, with the U.S. and Europe each contributing 30% to its revenue. Asiamakes up 12%.

" .... We see more business potential in Asia, especially India and China ...." LIM said. About 80% of its gloves are sold to the medical industry.

With some minor glove makers expected to cease operationsduring this difficult period, LIM sees it as an opportunity for TOP GLOVE to get more business.

PRICE INCREASE
In mitigating the escalating raw material prices, TOP GLOVE has increased glove prices since May 2008. Latex powdered gloves,which make up 52% of its total revenue, are currently sold at USD27 per 1,000 pieces, up from US$23 per 1,000 pieces in May 2008.

" .... We pass 100% of the cost of natural gas, electricity,fuel and chemicals to customers. For latex, we absorb 20% of thecost and pass the other 80% to the customers ...." LIM said.

He was confident that raising prices to retain profit margin would not dent its competitiveness against rivals inThailand and Indonesia.

The cost of making gloves in Thailand and Indonesia is much higher than in Malaysia. For example, the natural gas price in Thailand is RM38 per mmBtu (million metric British thermal unit).

USE OF BIOMASS ENERGY LIM dismissed suggestions that using biomass as fuel could be expensive, as manufacturers had to maintain boilers and also provide storage for biomass materials.

Before the increase in natural gas prices, the production cost of using either biomass or natural gas was similar. However, the Government has raised the price of natural gas by 71% to RM22.06 per mmBtu from Aug 1, 2008.

" .... After deducting the cost of storing biomass materials and maintaining the boilers, we could still save up to 70% compared to using natural gas ...." LIM said, adding that TOP GLOVE was using palm kernel shells, empty fruit bunches and wood chips to feed its boilers.

The Government had on Jun 4, 2008 announced that it wouldincrease the selling price of natural gas by as much as 187% to RM32.56 mmBtu by Jul 1, 2008. However, it had deferred the full implementation and the price hike would be gradual over the next 10 years until they are on par with global prices.

LIM noted that the cost of building a biomass-powered boiler is RM5m more than the cost of installing natural gas piping. The construction cost for a biomass-powered boiler is more expensive but we can save on the operating cost in the long run ...." he said.

With the costlier natural gas, the Company estimated that fuel would constitute about 11% of its overall production cost compared with 8% previously.

However, LIM said the cost would be reduced by 1% to 2% upon the completion of two factories which would use biomassenergy. The factories would be completed in Aug and Oct 2008, respectively. At present, TOP GLOVE has four factories withbiomass-powered boilers - two in Malaysia and two in Thailand.

R&D PLANS
Moving forward, the Company would spend 1% of its revenueannually on research and development (R&D) in technology, whichcould save another 10% to 20% in cost.

Asked if TOP GLOVE would expand its upstream businesses, LIM said " ....We are actually exploring a joint-venture opportunity with the Government or third party to lease rubberestates. However, nothing is concrete yet ....".

" .... We are not in a hurry to buy rubber estates as we have two latex concentrate plants in Thailand to process raw latex. Rubber estates are very costly now ...." he added.The two factories in Thailand have a total capacity of 70,000 tonnes per annum, supplying 60% to 70% of Top Glove's latex needs.(By KLSETRACKER.com)