Financial Analysis and Management

Top Glove Corporation Berhad is a manufacturing company incorporated in Malaysia since 1991. It is involved in the production of rubber glove and is currently the world’s largest manufacturer with RM 2. 31 billion sales in financial year 2012. The company’s products are exported to 185 countries.

With such a wide market penetration, Top Glove is able to diversify its risk especially those involving the countries where their products are marketed.Besides that, it has 23 manufacturing facilities with 458 production lines which are not only located in its home country, Malaysia with 17 factories, but also 6 facilities in Thailand and China. Being in the leading position of its industry also provided Top Glove with an advantage to expand and minimize its competition through acquisition and merger. It has recently acquired 95% equity stake in PT.

Agro Pratama Sejahtera which has a plantation land size of 30,773 hectares in Sumatera, Indonesia with a concession to operate for 60 years and extendable to a further 60 years.This will ensure long term future consistent supply of latex and expected to mitigate the impact of volatility of rubber prices on Top Glove’s financial performance. It has also proposed to acquire 100% equity stake in GMP Medicare Sdn Bhd from Matang Manufacturing Sdn Bhd for RM24. 1 million to expand its hold on the market. Additionally, Top Glove’s directors and management team consists of people with high caliber and experience in their field. This has been proven by years of excellent track record, especially in its financial reporting.

The overall strategy of top glove, which emphasizes on a wide market base and high quality/low-price strategy with the motto “To produce consistently high quality gloves at efficient low cost” put it in a relatively safe position that is difficult to match by its competitors. The business which requires big initial outlay will deter small players from entering the market and its trade secret lie in producing high-quality product with such efficiency in-term of cost and volume will take years if ever to master by its competitors.Besides that, Top glove has also moved into the upstream of the business through the above acquisition. This vertical integration, allow it to be in full of control of its business maneuvering without being too effected by external environment and factors.

The nature of product manufactured by Top Glove is also another consideration in choosing the company. Manufacturing of rubber glove, a necessity especially in healthcare industry promises steady demand, relatively recession proof and not too extremely affected by the economic climate.To add to that, the demand for the company’s product shows steady growth throughout the years and judging by the trend set in five years of its financial statement, this outlook is set to be replicated in coming years. Its focus on quality of the product has been the main selling point. The fact that they can penetrate markets such as Europe and US is a testament to the product quality as these countries have a very stringent product standard policy which is a barrier for other competition to enter the market.Aside from being a company with a very solid product and wide market penetration, Top Glove is also reporting very healthy level of cash holding.

In the Financial Year of 2012, Top glove reported the holding of RM 308. 5 Million in cash and cash equivalents, and this is after utilizing RM 145. 6 million (cash) to finance the company’s capital expenditure and dividend payment. As such, the company is in a very good liquidity position and is far from facing issues which can pose serious problems to a company.

As opposed to a company reporting high level of profit, Top glove has realized on their profit and this is proven by the amount of the cash they are holding. Being a liquid and cash rich company will allow Top Glove to deal with their short term liabilities effectively and ensure that its growth is sustainable with the backing of strong and growing demand. This is a further positive point to be considered in choosing the company as the rate of return either in the form of dividend or earning per share is likely to be on the upward trend.Being a responsible investor, it is also important that Top Glove’s involvement in Environmental Friendly practices and support towards Corporate Social Responsibility be taken into consideration. They have taken the efforts such as using 40% biomass fuel for their heat energy and water treatment utilizing chemical flocculation, anaerobic digestion and activated sludge process that comply with DOE standard B requirements. Over the last three years, Top Glove has also made significant contributions to various causes, totaling more than RM1.

5 million, which includes donation to the underprivileged and needy through various organisations.Section A (ii) In the financial year of 2012, a few important announcements were made and occurrences of significant events were recorded as follows; * Average latex price declined by 17%, from RM8. 92/kg in FY2011 to RM7. 36/kg in FY2012 * For the financial year ended 31 August 2012, the Group recorded revenue and net profit of RM2. 3 billion and RM207.

3 million respectively * The Board of Directors has proposed a final single tier dividend of 9 sen per share amounting to approximately RM55. million. * The Group had on 14 June 2012 declared an interim single tier dividend of 7 sen per share amounting to RM43. 3 million in conjunction with the financial results announcement for the third quarter ended 31 May 2012.Payment of the interim dividend was made on 19 July 2012.

On a full year dividend basis, the 16 sen per share represents an increase of 45% over last year’s dividend of 11 sen per share and a total dividend payment ratio of approximately 50%. * The Group has recently completed the acquisition of 95% equity stake in PT Agro Pratama Sejahtera for RM22. million which owns 30,773 hectares of land in Indonesia.* The Group marks another new milestone with the construction of Top Glove Tower, a 23-storey corporate office building in Setia City, Shah Alam in Malaysia * To address the impact of the impending minimum wage implementation come 1 January 2013, the Group is taking concerted efforts to invest in more automation and research and development to improve the productivity and efficiency of its production lines, and thereby reduce its dependence on foreign general workers.