Top Glove in a Lucrative Industry

New venture offers higher PE valuations and synergy

TAN Sri Lim Wee Chai, the founder of Top Glove Corp Bhd, is convinced that the condom business is a lucrative one to venture into.

Intrigued by his announcement at the company’s third-quarter results briefing for the financial year 2017, there was a slew of questions from analysts and the press on his targets for the new business.

The 59-year-old boss of the world’s largest rubber glove company must have done his calculations with his team of managers prior to laying out the business plan, one that he says is still at the initial stages, but something that the market has been hearing about for some time.

In a steady tone, he says it’s a flourishing business to expand into since price-earnings valuations for the condom business are higher.

“We are targeting end-2018 to start our production,” he says, adding that up to RM75mil will be ploughed into the two-phase project.

Lim notes that the first phase of this two-phase project entails an initial sum of RM30mil for 10 production lines, followed by 10 more lines in the second phase, which costs RM20mil.

A further RM25mil has been allocated for building the factory as well as land that it had acquired earlier.

While he points out that he is also open to acquiring condom manufacturers, the initial contribution to profits from the potential new venture is expected to be 5%.

“With 20 double-track lines, we estimate a production of two billion pieces per year,” he notes, adding that the new product will fall under the glove maker’s original equipment manufacturer (OEM) business.

A notable entrepreneur who has made his way into Malaysia’s rich list, Lim inherited the family’s rubber planting and trading business – one that has been long viewed as a sunset industry.

But today, Top Glove is one of the top-performing companies on the Main Market of Bursa Malaysia since its listing in 2001. It has been maintaining about a 50% dividend payout ratio for the last few years.

It has booked an average revenue growth rate of 24%, profit after tax (PAT) of 29% and a PAT margin of 9.5% for the past 16 years.

“There is still money to be tapped from rubber.

“A company of our size needs to diversify in order to grow further.

“We also need to set ourselves higher targets in order to keep expanding,” he explains.

To this end, Lim says the company is exploring synergistic mergers and acquisitions (M&As), joint ventures and new set-ups in related industries on a continuous basis.

Similar to his rubber glove business that has flourished over the years, Lim is not aggressive in making acquisitions amid its steady cash flow.

A cautious businessman, he is not in a rush to conclude any deals and the priority remains identifying targets (businesses) with good valuations – one that can immediately contribute positively to the group.

“We will start small, but we are optimistic of the business in the longer term.

“We believe that good business decisions coupled with hard work will see our plans to fruition,” he notes.

Why condoms and not other medical related products?

Lim says the technology used in producing condoms is closely related to its current glove technology. This includes marketing, the production process and raw materials to make the product.

“Demand for this product is growing and the margins are also attractive,” he notes, adding that it only needs to improve the production speed of condoms since it is relatively slower compared to gloves.