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Malaysian glove giant in Vietnam expansion as demand surges

Top Glove says it's on the lookout for merger and acquisition opportunities

Top Glove is expected to open its first plant in Vietnam by the end of next year.

KUALA LUMPUR -- Malaysia's Top Glove will open its first Vietnam factory next year as the world's largest glove maker boosts production to meet a surge in demand for hygienic gloves.

As rising global health standards expand the market for medical and laboratory gloves, Top Glove executive chairman and founder Lim Wee Chai said the company was also on the lookout for acquisitions as it finalized plans to also open new plants Malaysia and Thailand.

"We plan to build at least one to two new factories every year and also remain open to merger and acquisition and joint venture opportunities in related businesses," Lim told Nikkei Asian Review in an interview, adding that the manufacturer allocates almost $100 million each year toward factory expansions and automation upgrades.

By December next year Top Glove expects to have 872 separate product lines, up from 648 product lines this year, with total production capacity rising to 83.3 billion gloves, compared to 63 billion gloves in 2018, and 49 billion gloves the year before.

Top Glove, which has a market capitalization of just over $3 billion, reported $105.7 million profit last year on the back of $1 billion in revenue. The company operates 40 factories across Asia, including one in China, and currently exports to 195 markets globally.

According to AmInvestment Bank analyst Nafisah Azmi, Top Glove's net profit margin dropped to 8% in 2019, compared to 11.1% in 2018.

"Moving forward, we believe that Top Glove will be able to revive its margins in fourth quarter of financial year ending August 31, 2019 to the 16% level as the company has hiked the selling price for its natural rubber gloves to match its raw material price movement," said Nafisah.

Still, he said Top Glove will continue to face pressure on margins in 2019 due to increased supply by rival manufacturers such as Thailand's Sri Trang, which plans to increase latex glove supply to 30 billion gloves, from 17 billion currently, by 2022.

Nabil Zainoodin, an analyst at MIDF Amanah Investment Bank, said that "while the aggressive expansion in production capacity among glove manufacturers has resulted in pricing pressure, we expect this will be offset by a higher sales volume."

Lim, 61, who founded Top Glove in 1991 with a single product line, said the decision to open a factory in Vietnam was not an attempt to reduce its reliance on China amid protracted trade tensions between Washington and Beijing.

Top Glove founder Lim Wee Chai said the company will also focus marketing efforts on emerging countries where low glove usage is rapidly on the rise.

"China's sales of gloves are expected to be diverted to operations in Malaysia, impacting sales here positively," Lim said. "However, this impact is minimal. War of any kind is never good in the long term and we hope this trade war can be resolved soon."

With Top Glove to invest $24.5 million to build the new Vietnam factory, Lim said he expects global demand for gloves to continue rising by around 10% a year. The Vietnam plant is expected to commence production of PVC gloves production mid-2020, with an estimated capacity of four billion gloves a year.

Lim said he expected four new plants in Malaysia, and one new plant in Thailand, to be operational by the end of next year, adding that the company was also looking to accelerate the development of its condom business, and also venture into medical catheters either through a merger and acquisition scenario or through a joint venture.

"We are still in the trial phase and are in the progress of obtaining several country registrations and World Health Organization certification," Lim said. "Via our existing customer base and good networking, we will be able to move faster once we have completed registration and obtained certification to proceed with the distribution of products."

Currently making around 200 million condoms a year, Lim said demand for prophylactics remained resilient amid increasing sexual wellness awareness and the need to protect against sexually-transmitted diseases.

"We foresee demand coming from commercial markets especially from developed countries compared to non-commercial or tender markets," Lim said. "With our readiness in supplying condoms in several variations, even our existing glove customers are ready to purchase condoms to complement their product portfolio," said Lim.

He said Top Glove was invest $12.2 million next year in a medical catheter manufacturing facility as part of its diversification plan, which also includes the manufacture of biodegradable gloves which break down 10 times faster compared to conventional examination gloves.

"Gloves will still be our main product, but we are always on the lookout to diversify our business to other healthcare-related products," Lim said.

Acknowledging analyst concerns around a possible production glut, Lim said he believed any oversupply issues would be temporary as increasing hygiene standards worldwide continued to drive up demand for rubber gloves.

"We will also be focusing our marketing efforts on emerging countries where glove usage is relatively low but rapidly on the rise," Lim said. "Our product range now includes more varieties of gloves, as well as other rubber-related products like condoms, dental dams and exercise bands, and with this, we believe there are even more marketing opportunities we can tap into."

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