By Azlan Abu BakarPublished: 2011/01/12
The world's biggest rubber glove manufacturer, Top Glove Corp Bhd's, (7113) first quarter net profit for the period ended November 30 2010 dropped 20 per cent due to persistently high latex prices and weak US dollar.
The group also blamed the lower profit on the time lag in passing on the higher costs to its customers.
Top Glove chairman Tan Sri Lim Wee Chai said the adverse situation, nevertheless, had opened doors for other opportunities, including further consolidation among industry players.
Top Glove will be in the market to buy other glove makers to boost its leading position, Lim told reporters at a media briefing in Kuala Lumpur yesterday.
For the quarter under review, Top Glove's revenue went down 9.2 per cent to RM491.5 million from RM541.4 million in the previous quarter.
Lim said average latex prices had risen 57 per cent from RM4.58 per kg in the first quarter of last year to RM7.20 per kg to date.
"Demand for rubber gloves, which has been normalising, coupled with the excess capacity situation, have impacted the industry," he added.
Lim noted that the average US dollar had weakened against the ringgit by 9.3 per cent (RM3.43 in the first quarter of 2010 versus RM3.11 in the first quarter of 2011).
Customers, he said, had kept their inventory at a minimum level due to the high selling price of latex gloves, which reflected the increasing cost of latex prices.
"We will share some of these higher costs with our customers, even though there will be a time lag for the higher cost to be passed down."
In efforts to mitigate the impact of latex prices, Top Glove will spend an estimated RM160 million to plant rubber trees in Cambodia, its first downstream plantation activity.
Covering a net area of 8,000 hectares and land concession of 70 years, Lim said planting will spread over six years.
Lim said Top Glove was in good position to further enlarge its business when opportunities arise, especially now that the group has a stronger balance sheet position with a net cash of RM342.9 million.
"We feel this is a good year for us to conduct evaluation on several potential latex glove makers for possible merger and acquisition (M&A) activities," he added.
He said backed by an improved economic environment, Top Glove has received feedbacks from several parties that are willing to relinquish their stake in certain companies.
Lim said the M&A activities will only involve companies that can drive stronger growth for the group and have an effective operation to boost productivity.
"We have waited since 2010 to acquire a company that can help boost our position as the world's leading latex glove producer. This year is the time to do so," he said.
Top Glove's production from its 20 manufacturing plants is expected to increase to 41.25 billion pieces per annum by August 2011 based on 459 production lines, compared with the current 33.76 billion pieces based on 379 lines from 17 plants.
Currently, the group exports its products to more than 180 countries.
Three new factories with two in Klang and one in Ipoh, as well as one in Sadao, Thailand, would add 7.5 billion pieces to the expected production by August this year, Lim said.
Read more: Top Glove feels pinch of latex prices, weak dollar http://www.btimes.com.my/Current_News/BTIMES/articles/topgo/Article/index_html#ixzz1AlhMuOfr
