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Business

Top Glove's expansion hampered by lack of foreign workers

Glove-making machines churn out millions of gloves in this Top Glove factory.

KUALA LUMPUR -- Top Glove, Malaysia's largest natural rubber glove manufacturer, is eyeing expansion in Thailand amid Malaysia's ongoing foreign worker policy flip-flop.

"It's the survival of the fittest. Rubber City in Thailand is more advanced than Malaysia," Top Glove Executive Chairman Lim Wee Chai said during a visit to a Top Glove factory Monday.

He said that Top Glove invested in Thailand in 2001 after the Malaysian government froze hiring of foreign workers. "We wanted to expand, but the factory could not be operated without a certain number of workers. Hiring was frozen for about a year, so we had no choice; we had to expand to Thailand and China."

Thailand's Rubber City, located 946km south of the capital Bangkok, expects to attract $10 billion in investment as well as boost rubber consumption and prices. It offered investors various tax exemptions for up to eight years and is slated for completion by 2017. Malaysia is also reportedly setting up its own version of Rubber City in Kedah, in the northern part of Peninsular Malaysia.

Malaysia's indecision in its foreign labor policy drew flak from several affected industries when it announced the hiring of 1.5 million Bangladeshi workers. It then backtracked, imposing a hiring freeze before allowing select sectors, including manufacturing, construction, and plantation to hire foreign workers through legal channels.

Malaysia's manufacturing, construction and plantation sectors are heavily reliant on foreign workers, as local people shun the low-skilled jobs in these sectors.

Top Glove had been on a drive to automate its operations to reduce the amount of manual labor needed. "The cost of labor is going up, so automation is important," Lim said.

It reported Wednesday that its net profit declined 36.1% year-on-year to 65.6 million ringgit ($15.7 million) for the fourth quarter ended in August due to intensified competition leading to lowered average selling price.

Top Glove's revenue rose 1.8% to 722.1 million ringgit in the quarter from a year ago. The company said the headwinds it faced in the second half of 2016 were due to fluctuating raw material prices, and forex uncertainty causing a "mismatch in the cost pass-through system," in a statement released on Bursa Malaysia. Rubber glove manufacturers periodically adjust average selling prices to reflect the price of raw materials.

For the full fiscal year of 2016, it recorded 29% increase in net profit to 361 million ringgit on the back of a 15% growth in revenue to 2.89 billion ringgit. Going forward, it "foresees a competitive business landscape ahead, with the likelihood of oversupply and eventually, industry consolidation taking place."

The 25-year-old manufacturer operates 28 factories and plants, totaling 500 production lines with a capacity to churn out 46.6 billion pieces per annum. It has one manufacturing facility in China and four in Thailand, with one more slated to start operations by December 2016.

Top Glove said it is still in expansionary mode, keen on more merger and acquisition opportunities that would "synergize with its current business." It acquired a factory in Klang in September to ramp up manufacturing. It planned to add 40 more production lines to boost production to 52.4 billion pieces a year.

Top Glove's stock rose 1.01% to 5 ringgit, while the benchmark FTSE Bursa Malaysia KLCI declined by 1.96 points at 5pm on Wednesday.

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