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Please read carefully the important disclosures at the end of this publication.
INITIATING COVERAGE
11 April 2007
CIMB Research Report
OUTPERFORMTop Glove Corporation
RM9.25 @10/04/07
Glove industrys top dog Target: RM11.80
Industrial (Rubber Gloves)
MALAYSIA
TOPG MK / TPGC.KL Sharifah Farah + 60 (3) 2084-9965 [email protected] KKDN PP 14048/11/2007
Global leader. Top Glove is clearly living up to its name. It is the worlds largestrubber glove manufacturer with an estimated global market share of 22%, which ittargets to raise to 35% by 2010.
One-stop shop. The group aims to become a one-stop shop for gloves, a movethat should help it to garner more market share. It already offers a wide range ofproducts from latex to synthetic gloves and from examination to industrial usage.Top Glove has 13 key products for both hospital and industrial use.
25-40% annual expansion to drive earnings. Earnings will be fuelled by itscapacity expansion of 25-40% p.a. in FY07-09. It plans a staggered expansion thatwill keep pace with market demand. Top Glove has a 3-pronged growth strategy
organic growth, growth via M&As and upstream diversification. OUTPERFORM with target price of RM11.80. Top Glove is trading at a CY08
P/E of 17.2x, which is at a discount to its historical 1-year forward P/E of 22x.Tagging this average to its CY08 EPS, we get a target price of RM11.80, whichimplies share price upside of 27.6%, higher than the current market return of 12%.We begin coverage with an OUTPERFORM recommendation. The main re-ratingcatalyst is the improving quarterly earnings driven by its ongoing capacityexpansion and M&A activities.
Financial summary
FYE 31 Aug 2005 2006 2007F 2008F 2009F
Revenue (RM m) 641.8 992.5 1,367.1 1,713.6 2,110.5
EBITDA (RM m) 89.0 129.5 175.6 232.4 287.4
EBITDA margins (%) 13.9 13.1 12.8 13.6 13.6
Pretax profit (RM m) 65.7 91.8 127.9 174.8 218.6
Net profit (RM m) 53.4 78.4 108.0 147.9 185.1EPS (sen) 28.5 41.5 44.1 49.4 61.8
EPS growth (%) +34% +45% +6% +12% +25%
P/E (x) 32.4 22.3 21.0 18.7 15.0
Gross DPS (sen) 8.0 9.0 10.0 13.0 15.0
Dividend yield (%) 0.9 1.0 1.1 1.4 1.6
P/NTA (x) 8.8 6.8 3.9 3.3 2.8
ROE (%) 29.4 32.4 21.3 18.6 19.7
Net gearing (%) 63.4 75.1 - - -
Net cash per share (RM) (0.69) (1.12) 0.33 0.30 0.40
P/CF (x) 24.0 16.5 15.7 14.1 11.2
EV/EBITDA (x) 19.7 13.8 13.3 13.3 10.6
CIMB/Consensus (x) 1.13 1.10 1.06
Source: Company, CIMB/CIMB-GK estimates, Reuters Estimates
Price chart Market capitalisatio n & share price info
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
0.0
0.4
0.8
1.2
1.6Volume10 million(R.H.SCALE)TOPGLOVECORPORATIONBHDRELATIVETOKLCI (R.H.SCALE)
7
Market cap RM2.7bn Share price perf. (%) 1M 3M 12M
12-mth price range RM5.70/RM10.00 Relative (5.4) (18.9) 14.6
3-mth avg daily volume RM3.7m Absolute 3.9 (4.8) 58.9
# of shares (m) 299.6 Major shareholders % held
Est. free float (%) 32 Dato' Sri Dr. Lim Wee-Chai 27.0
Conv. secs (m) None Top Glove Holdings 7.2
Source: Bloomberg Source: Company, CIMB/CIMB-GK Research, Bloomberg
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BackgroundGlobal market leader... Top Glove is clearly living up to its name. It is the worldslargest rubber glove manufacturer with an estimated global market share of 22%based on its existing capacity.
with overseas plants. Established in 1991, the group was listed on BursaMalaysias second board a decade later and, within 14 months of listing, graduated tothe main board in May 02. It has also diversified overseas and set up four factories inThailand and two in China, in addition to the 12 facilities it has in Malaysia.
Figure 1: Corporate structure
TG Medical (Zhangjiagang) Incorporated
B Tech industry Co Ltd: Thailand
Top Glove Engineering
Top Glove Medical (Thailand)
Great Glove (Thailand)
Top Glove International - M'sia
Top Glove Technology - M'sia
Top Glove (Zhangjiagang) Co. Ltd
Great Glove (Xinghua) Co. Ltd
Top Glove Technology (Thailand) Co. Ltd
TOP GLOVE CORP
TG Medical (USA) Inc
Great Glove Sdn Bhd
TG Medical Sdn Bhd
Top Glove Sdn Bhd
Source: Company
A one-stop so lu tion. Top Glove aims to become a one-stop shop for gloves. Italready offers a wide range of products from latex to synthetic gloves and fromexamination to industrial usage. The company has 13 key products (Figure 2) for themedical, industrial and food & services industries. 80% of their output is in the form ofnatural rubber gloves and the remaining 20% are synthetic gloves. Synthetic glovesencompass vinyl, nitrile and polyethylene apron (P/E) gloves.
Figure 2: Product range (i)
Latex Non-latex
Latex examination powdered gloves Nitrile examination gloves
Latex examination powder-free gloves Vinyl examination gloves
Long length 12" high risk gloves PE gloves
Coloured (blue/green) gloves
Flavoured (mint) gloves
Latex examination polymer-powder-free gloves
Surgical gloves
Household gloves
Industrial gloves
Cleanroom gloves
Source: Company
Figure 3: Product range (ii)
Source: Company
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Worldwide presence. Almost 100% of its products cater for the export market.Thanks to its massive size and wide product range, the group exports to more than750 customers in about 175 countries (Figure 4). Given the original equipmentmanufacturer (OEM) nature of its business, Top Glove manufactures for a wide rangeof customers. It is not dependent on any single customer as no customer contributesmore than 5% of group sales.
Figure 4: Export markets
USA, 30%Australasia, 8%
Rest of the world,16%
Europe, 30%Middle East, 6%
Latin America, 10%
Source: Company
Huge production capacity.Top Glove has a total of 310 production lines which are
able to manufacture 27.0bn pieces of gloves a year (Figure 5).
Figure 5: Production capacity
Countries No. of factories No. of glove lines Capacity
(bn pieces p.a.)
Malaysia 12 238 20.48
Thailand 2 36 3.38
China 2 36 3.14
Total 16 310 27.0
Source: Company
Moving upstream. Due to its vast usage of latex, Top Glove expanded upstreamthrough the acquisition of B Tech Industry, a manufacturer of concentrated latex inThailand for RM26.8m in May 06. B Tech has a plant in Haadyai which houses 29latex centrifuge machines and has the capacity to supply up to 40,000 metric tonnesof centrifuged latex annually or about 30-40% of the groups latex requirement ofabout 100,000 tonnes.
We are positive about its upstream expansion as it will give the group better controlover the supply, timing and quality of part of its latex consumption. We understandthat the expansion will lead to latex cost savings of up to 3%. While this does notappear material, we note that latex makes up 54% of Top Gloves cost of production,followed by chemical products, overheads and other expenses and labour costs(Figure 6).
In terms of quality, B Techs plant was awarded the ISO 9001:2000 certification in J un05. It is also recognised by Thailands Environment Institute and Pollution ControlDepartment since J an 05. Its factory is considered a model factory for wastewatertreatment in Haadyai.
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Figure 6: Cost structure
Latex, 54%
Labour, 9%
Packaging, 7%
Chemical, 11%
Overhead & Others,
10%
Fuel, 9%
Source: Company
OutlookRecession-proof product. Glove is a commodity product and a necessity in thehealthcare and food & services industries. This ensures continued demand evenduring recessions. Glove consumption now stands at about 120bn pieces p.a.Industry players estimate that global demand for gloves is increasing at a rate of 10-12% a year, driven by population growth, greater awareness of hygiene andemergence of diseases and health treats like SARS, bird flu and anthrax.
Industry consolidation. On the local front, stringent quality requirements and risinglatex costs over the years have led to the exit or takeover of many smallermanufacturers which are unable to comply with quality standards and do not enjoyeconomies of scale. We believe that this backdrop will create a vacuum for the biggermanufacturers like Top Glove to fill.
Outsourcing trend. Big US multinationals (MNCs) like Kimberly-Clark and Ansell arenot expanding their glove production capacity but instead are outsourcing theirproduction. Being an OEM manufacturer, Top Glove which is already a supplier to theMNCs will clearly benefit.
Expansion programmeTop Glove is embarking on various expansion programmes, which fall into threecategories.
Organic grow th
Putting in more lines. The group targets to put in an additional 52 lines (4.87bnpieces p.a.) in two of its factories in Malaysia and another 40 lines (3.98bn piecesp.a.) in its plant in China. Both expansions are targeted to be completed by 1H08 andwill push the groups total capacity to 33.8bn pieces a year (Figure 7). This will placeTop Glove in a position to tap the strong demand for gloves and MNCs outsourcing.
Targets 35% global market share by 2010. Based on the estimated global market of123bn gloves and Top Gloves capacity of 32.8bn pieces by end-07, the company willbe able to supply up to 25% of global glove requirements. It targets to increase itsmarket share to 35% by 2010. To this end, it plans to set up about two factories perannum in stages after 2007 (Figure 8). The expansion will be staggered to avoidflooding the market.
Figure 7: Installed capacity FYE August
1.0 1.2 1.4 2.4 3.25.1 7.2
9.015.0
22.0
31.0
40.0
50.0
0
10
20
30
40
50
60
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007F 2008F 2009F
pieces (bn)
Source: Company
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41% capacity growth in 2007.Top Gloves production capacity notched a CAGR of47% in the past five years. For FY8/07, the group is on track to increase its capacityby 41%, followed by 29% in 2008 and 25% in 2009. The slower growth rate in 2008and 2009 is the result of a bigger base. Among the top three glove manufacturers inMalaysia, Top Gloves capacity expansion in FY07 will be the strongest at 41%,followed by 38% for Kossan and 30% for Supermax (Figure 9).
Figure 8: Plann ed capacity expansion
FYE Aug 2006 2007^ 2008^ 2009^
No. of glove factories* 14 16 18 20
No. of production lines 250 350 450 580
Installed capacity (bn) 22 31 40 50
Annual capacity growth rate (%) 47.0 40.9 29.0 25.0
Total no. of customers 750 850 950 1,000
Countries of export 175 180 185 185
* Does not include latex plants; Target
Source: Company
Figure 9: Growth comparison
FY Kossan Supermax Top Glove
lines bn Growth lines bn Growth lines bn Growth
2005 49 3.9 - 64 7.1 - 180 15 -
2006 75 5.6 44% 70 8.0 13% 250 22 47%2007F 88 7.7 38% 87 10.4 30% 350 31 41%
2008F 101 9.9 29% 121 13.5 30% 450 40 29%
Source: Company, CIMB/CIMB-GK estimates
Will there be a glut? Given the strong expansion growth of 47% in FY07 vs. theestimated global demand growth of only 12%, we believe there are concerns over apossible glut and the markets ability to absorb the increase in capacity from TopGlove and other glovemakers. We believe that the group is mitigating the risk byproducing a wider range of products, including new products. This will enable it topenetrate into new markets and secure more customers. It will also allow the group toobtain bigger orders from existing customers.
Falling exports. Malaysia is the largest rubber glove supplier in the world, supplying60% of the worlds current consumption. Despite the aggressive capacity expansion
by the bigger boys, the value of exports fell in 2007, which we believe was due to theexit of some smaller players. Against this backdrop, we believe that bigger players likeTop Glove will be able to tap and fill the vacuum created by the exit of smaller players.
Figure 10: Export growth trend
-40
-20
0
20
40
60
80
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006F
%
Growth in volume Growth in value
Source: DOS, CIMB/CIMB-GK Research
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M&A opportunities
Medi-Flex deal... In Oct 06, Top Glove proposed to acquire a 60% stake in Medi-Flex(MDFX SP; Not Rated) for RM49.19m. The purchase price was subsequently revisedto about RM28m after the completion of due diligence audit. The acquisition, whichwas funded by a mix of internal funds and external borrowings, was completed in mid-Mar 07.
This cleanroom and medical disposable glove manufacturer was listed on the SGX inNov 04. It started with the production of disposable medical gloves in 1999 beforeswitching its focus to specialty gloves, particularly for cleanroom usage. It has apartnership with US-based Techniglove International.
In Malaysia, Medi-Flex has two manufacturing plants based in Klang and Banting,Selangor. The two plants house 27 lines with a total installed capacity of 1.6bn glovesa year. However, utilisation is low at about 30%.
allowed for expansion into cleanroom segment. The Medi-Flex deal is a positivedevelopment for Top Glove as it allows the latter to expand its operations into themanufacture of cleanroom gloves and venture into another market segment.Cleanroom gloves are used in the electronics industry, namely the hard disk drive(HDD) and semiconductor sectors.
What is a cleanroom? A cleanroom is a place or an environment which is ultra-clean. Microprocessors, for instance, have to be manufactured in cleanrooms. "ClassOne" cleanrooms are the cleanest of all, with no more than one speck of dust percubic foot of space.
How clean? Cleanrooms are 10,000 times cleaner than a hospital operating room. It
takes an incredible amount of technology to achieve and maintain such cleanliness.Huge air filtration systems completely change the air in cleanrooms about 10 timesper minute, reducing the chance of airborne particles that might harm the chips.
Will expand customer base... In line with the groups capacity expansion, Top Glovetargets to expand the number of countries it export to and the increase the list of itscustomers from more than 750 currently to about 1,000 by FY8/09. Continuousmarketing and product range expansion will simultaneously help it to expand itscustomer base.
but earnings accretion is minimal. For FY06, Medi-Flex recorded a turnover ofRM89m but a net loss of RM22.6m. The loss resulted from a surge in the prices ofraw materials, mainly latex. The presence of Top Glove will enable Medi-Flex to enjoycheaper raw material costs through bulk purchasing. However, we gather thatcontributions from Medi-Flex will be small initially. Top Glove targets Medi-Flex tobreak even by Apr 08.
Is a turnaround likely? Given the groups dedication and track record of turningaround ailing companies in Ipoh and Thailand within a year of acquisition, we areconfident that it is able to turn around Medi-Flex.A factor in its favour is the location ofMedi-Flexs plants near Top Gloves plants. Top Glove targets to increase Medi-Flexsutilisation rate to 75% by the end of next year. We understand that, just one monthafter acquisition, it managed to raise Medi-Flexs utilisation from 30% to 40%.
Upstream expansion
Top Glove recently announced its intention to acquire rubber plantation and glovefactories in the South-East Asian region. However, these plans are still very much atthe preliminary stage. We understand that the group is open to such possibilities if thetime, price and place are right and if they will benefit the group in the long term.
The group is setting up another latex concentrate plant in Haadyai. The plant will havea capacity of 50,000 tonnes a year and is expected to be completed by end Apr 07(Figure 11). When it comes onstream, the group will be able to produce up to 90,000
metric tonnes of latex a year or about 80% of the groups latex consumption.
Figure 11: Latex plants
Factories Location No. of latex Latex processing Completion/ target
cen tr ifu ge mac hi nes c ap ac ity (t on nes p .a.) c omp leti on d at e
F16L Hadyai, Thailand 36 50,000 End-April 07
F17L Hadyai, Thailand 29 40,000 Aug 06
Total 65 90,000
Source: Company
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SWOT analysisOur SWOT analysis clearly shows that Top Gloves strengths and the opportunitiesavailable to it outweigh its weaknesses and the threats to its business.
Strengths. One of Top Gloves competitive edge is its size and wide product range.This is in line with groups strategy of becoming the one-stop glove sourcing centre forglove users. Its size confers on it economies of scale and also the ability to expandupstream.
Opportunities. Opportunities abound for Top Glove. Its expansion plans will enable itto ride on the increasing global demand for rubber gloves and the outsourcing trend
by MNCs. Top Gloves size also places it in a good position to undertake M&As,which are likely given our belief that the local industry will experience moreconsolidation.
Weakness. We can identify only one weakness in Top Glove. Being an OEMmanufacturer, it does not have any products that carry its own brand name. Its sizeand strong growth could also work against its favour as it makes it more difficult formanagement to keep a close eye on all its operations. This is demonstrated by therecent illegal labour issue.
Threats.The glove industry has low barriers of entry as only RM1m-1.5m is neededto start a line. That said, although it is cheap to enter the industry, new players maynot be competitive as they have to distinguish themselves from other players andneed to compete in terms of volume in order to enjoy economies of scale. Aggressiveexpansion by the bigger players also poses the threat of an industry glut. Price andavailability of latex are also sources of concern given that latex makes up more than
50% of the groups costs. To mitigate the risk, Top Glove has expanded upstream byacquiring its own latex processing plant.
Figure 12: SWOT analysis
Strengths Opportunities
Continuous capacity expansionOffers one-stop glove sourcing centreEconomies of scaleHuge customer baseVast number of export countriesOwn latex plantDisposable productsRecession-proof business
Increasing global demandOutsourcing trend by MNCsAbility for future M&As
Weaknesses Threats
An OEM with no own-brand glovesControl ability
Volatility in latex costsProtein allergy from rubber glovesInsufficient supply of latexSubject to price warSlower growthOversupply
Source: CIMB-GK Research
ConcernsLatexsupply.The key challenges for glove manufacturers include the availability of
latex and latex price volatility. Malaysia has an advantage as it is currently the thirdlargest latex producer after Thailand and Indonesia. Top Glove sources its latex fromboth the local market and from Thailand. To ensure consistent availability and qualityof latex, the company expanded upstream through the acquisition of a latex plant inThailand. Thus far, it has not encountered problems in sourcing latex.
Latex price volatility. Latex is the major cost component for rubber glovemanufacturers and makes up 54% of Top Gloves costs. In view of this, latex pricevolatility will affect the groups costs and margins. The price of latex has been trendingupwards over the past five years. It reached a high of RM6.85/kg in J un 06 butcorrected to an average of RM5.50/kg in the past eight months (Figure 13). On apositive note, Top Glove is able to pass on about 70-80% of the cost increase to itscustomers.
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Figure 13: Latex price trend
0
200
400
600
800
Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07
sen/kg
MRESCENT Index PX_LAST
Source: Company
Forex exposure. Given that almost 100% of Top Gloves revenue comes from theexport market, the strengthening of the ringgit would have a negative impact on thegroups sales. However, this is mitigated by the 25% import content in its costs. Oureconomics team forecasts that the ringgit will strengthen to RM3.45 against the US$by end-07 and RM3.35 by end-08. As the forex issue is also faced by manufacturersin Thailand, the impact can be passed to customers over the long run.
Figur e 14: RM/US$ trend
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07
RM
Source: Company
Energy cost. Energy costs make up about 9% of total production costs. All of TopGloves plants use natural gas as their energy source. This is the cheapest and mostcompetitive form of energy given the availability of natural gas resources in Malaysia.
Protein allergy. Latex protein allergy was once a major threat to glovemanufacturers. Thanks to technological advances over the years, the issue is nolonger a big concern. Rubber gloves produced today have substantially low proteincontent and rarely trigger an allergy. As for Top Glove, the threat of latex proteinallergy is much lower given the wide range of products it offers. Top Gloves productsinclude powder-free latex gloves and synthetic gloves.
Labour availability. In view of its size,Top Glove requires a huge number ofemployees. It currently has a workforce of about 8,000 and labour costs make up 9%of its production costs.
Too big to handle?The groups size could give rise to two issues. One is its ability tocontrol its operations, as underscored by the recent issue of illegal workers. However,on a positive note, Top Glove was quick to respond and resolve the issue with therespective authorities.
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Valuation and recommendationStrong growth underpinned by capacity expansion. Over the past 10 years, TopGlove has racked up 40% CAGR for revenue and net profit, thanks to its expansionefforts. Since its listing in Mar 01, its capacity has gone up more than 7-fold.
Capacity expansion will remain the key driver of revenue growth. We are targeting37% revenue growth for FY07 and 25% for FY08. The group expects net profit to risein tandem with revenue.
In 1H07, Top Glove registered RM619.6m revenue and RM50.2 net profit. We believeour FY07 forecast is achievable given that the group already achieved 45% of our
RM1.37bn revenue projection and 46% of our RM108.6m net profit forecast in 1H07.
Enjoys lower tax rate. The group enjoys a sub-par tax rate due to reinvestmentallowances. Its operations in Thailand are exempt from tax for eight years startingFY05, after which it will be subject to half the normal rate for five years. In China, it willbenefit from two years of zero tax from FY05 and half the usual tax rate for the nextthree years. In light of that, we have factored in a lower tax rate of 15% for FY07-09.This is in line with the groups expectations.
In a net cash position.Top Glove recently completed a private placement of 27.2mshares at RM8.80 per share. Proceeds from the placement were used for capex, debtrepayment and working capital. The group is now in a net cash position, the lowest ofrubber gloves companies under our coverage.
20% dividend payout. Top Glove is targeting to pay out some 20% of its net profit asdividends. The payout last year was 26%. The lower payout ratio planned isunderstandable as the group needs to retain cash for its expansion.
Modest valuations. For FY08, we forecast revenue growth of 25%, underpinned by a29% increase in output. The increase in output is driven by the expected increase indemand and the groups continuous expansion. Net profit is estimated to rise by abigger 37% in FY08, on better EBITDA margin and low tax rate.
OUTPERFORM with a target price of RM11.80. Top Glove is trading at a CY08 P/Eof 17.2x, which is at a discount to its historical 1-year forward P/E of 22x. Tagging thisaverage to its CY08 EPS, we get a target price of RM11.80, which implies share priceupside of 27.6%, higher than the current market return of 12%. We begin coveragewith an OUTPERFORM recommendation.
Second pick in the sector. Top Glove is trading at a premium to the industryaverage of 16x and Kossans 15x CY07 P/E. Being the industry leader, we believe itdeserves the premium. We like Top Glove for its wide product range, expansion planand strong earnings record. We rate it our second pick in the sector, after Kossan(KRI MK; OUTPERFORM).
Figure 15: Revenue and profit growth trend
Turnover trend and forecast Net profi t trend and forecast
0
400
800
1,200
1,600
2,000
2001 2002 2003 2004 2005 2006 2007F 2008F 2009F
RMm
-
40
80
120
160
200
240
2001 2002 2003 2004 2005 2006 2007 2008 2009
RMm
Source: Company, CIMB/CIMB-GK Research
Figure 16: Key assumptions
KEY DRIVERS (FYE Dec) 2005 2006 2007F 2008F 2009F
Installed capacity (m pcs) 15000 22000 31,000 40,000 50,000
Output (m pcs) 10500 15400 21,700 28,000 35,000
Ave Selling Prices (US$/1000pcs) 16.09 17.90 18.00 18.00 18.00
RM/US$ assumptions 3.80 3.60 3.50 3.40 3.35
Source: Company, CIMB/CIMB-GK Research
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Financial tables
PROFIT & LOSS (RM m, FYE Aug) 2005 2006 2007F 2008F 2009F
Revenue 641.8 992.5 1,367.1 1,713.6 2,110.5
Operating expenses (552.8) (862.9) (1,191.5) (1,481.2) (1,823.1)
EBITDA 89.0 129.5 175.6 232.4 287.4
Depreciation & amortisation (18.6) (28.2) (37.1) (49.2) (62.2)
EBIT 70.4 101.3 138.5 183.2 225.2
Net interest & invt income (4.7) (9.6) (10.7) (8.3) (6.6)
Pretax profit 65.7 91.8 127.9 174.8 218.6
Tax (12.3) (12.7) (19.2) (26.2) (32.8)Minority interests (0.0) (0.7) (0.7) (0.7) (0.7)
Net profit 53.4 78.4 108.0 147.9 185.1
Wt. shares (m) 187.3 189.0 245.1 299.6 299.6
Shares at year-end (m) 187.3 190.6 299.6 299.6 299.6
BALANCE SHEET (RM m, 31 Aug) 2005 2006 2007F 2008F 2009F
Fixed assets 295.4 420.4 542.2 655.1 755.9
Intangible assets 5.3 21.1 21.1 21.1 21.1
Other long-termassets 0.1 0.4 0.4 0.4 0.4
Total non-current assets 300.9 441.8 563.6 676.6 777.4
Cash and equivalents 25.1 59.2 318.6 287.0 299.3
Stocks 62.7 102.2 116.2 145.7 179.4
Trade debtors 112.3 149.8 202.3 253.6 312.4
Other current assets 5.6 9.1 12.3 15.5 19.0
Total current assets 205.7 320.3 649.5 701.7 810.1Trade creditors 78.6 100.4 123.0 154.2 189.9
Short-termborrowings 84.3 126.2 88.4 79.5 71.6
Other current liabilities 47.7 75.4 105.8 132.4 162.2
Total current liabilities 210.6 302.0 317.2 366.1 423.7
Long-termborrowings 69.9 146.4 131.8 118.6 106.8
Other long-termliabilities 22.4 29.5 31.6 33.2 34.8
Total long-term liabilities 92.3 176.0 163.4 151.8 141.6
Shareholders' funds 202.5 282.1 729.8 857.0 1,018.2
Minority interests 1.2 2.0 2.7 3.3 4.0NTA/share (RM) 1.05 1.37 2.37 2.79 3.33
CASH FLOW (RM m, FYE Aug) 2005 2006 2007F 2008F 2009F
Pretax profit 65.7 91.8 127.9 174.8 218.6
Depreciation & non-cash adjustments 18.6 28.2 37.1 49.2 62.2
Working capital changes (44.6) (55.1) (43.9) (49.5) (56.8)Cash tax paid (5.7) (6.2) (12.7) (19.2) (26.2)
Others 4.6 (8.1) 147.2 19.1 18.3
Cash flow fromoperations 38.7 50.5 255.6 174.5 216.0
Capex (135.7) (138.2) (150.0) (150.0) (150.0)
Net investments & sale of FA 0.3 0.3 - - -
Others 0.0 (24.3) (24.3) (24.3) (24.3)
Cash flow frominvesting (135.4) (162.1) (174.3) (174.3) (174.3)
Debt raised/(repaid) 91.1 118.5 (52.5) (22.0) (19.8)
Equity raised/(repaid) 8.0 14.8 235.5 - -
Dividends paid (12.3) (1.8) (16.2) (22.2) (26.6)
Cash interest & others 10.3 14.2 11.3 12.4 17.1
Cash flow from financing 97.2 145.7 178.1 (31.8) (29.4)
Change in cash 0.5 34.1 259.4 (31.6) 12.4
Change in net cash/(debt) (90.6) (84.4) 311.9 (9.6) 32.2
Ending net cash/(debt) (129.1) (213.5) 98.4 88.8 121.0
KEY RATIOS (FYE Aug) 2005 2006 2007F 2008F 2009F
Revenue growth (%) 53.5 54.6 37.7 25.3 23.2
EBITDA growth (%) 47.0 45.5 35.6 32.3 23.7
Pretax margins (%) 10.2 9.2 9.4 10.2 10.4
Net profit margins (%) 8.3 7.9 7.9 8.6 8.8
Interest cover (x) 14.6 9.5 11.4 17.7 24.2
Effective tax rates (%) 18.7 13.9 15.0 15.0 15.0
Net dividend payout (%) 20.2 15.6 16.6 19.5 18.0
Debtors turnover (days) 49.5 48.2 47.0 48.6 48.9
Stock turnover (days) 29.3 30.3 29.2 27.9 28.1
Creditors turnover (days) 36.6 32.9 29.8 29.5 29.8
Source: CIMB/CIMB-GK Research
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Appendices
Figure 1: Awards and accolades
Date Awards
2003 KLSE Main Board Corporate Merit award 2003 in industrial product sector
2004 Dato' Dr. Lim Wee Chai won the Master and Country Entrepreneur of the Year award 2004
and represented Malaysia in the World Entrepreneur of the Year contest in Monte Carlo, Monaco
2005 Won Finance Asia's annual Regional Best-managed Companies award ( for companies with
less than US$1bn market cap)
Awarded the 4th Asia Pacific/Malaysia e-Entrepreneur Excellence award 2005 under thecategory of excellence leadership by the Entrepreneur Development Association
Awarded the Rubber Industry award 2005 under the category of big factory
for latex products by Malaysia Rubber Board
Awarded KPMG/The Edge Shareholder Value award 2004 under the industrial market sector
and was ranked no. 13 among the top 100 chosen public listed companies
Won the Enterprise 50 Award from MITI for the 8th consecutive year (since 1998-2005)
2006 Ranked No.1 for 2 consecutive years (2005 and 2006) by The Edge among the Top 100
companies in Bursa for the highest return in the past three years
Source: Company
Figure 2: F9 - Malaysian corpo rate office
Source: Company
Figure 3: Latex plant in Thailand
Source: Company
Figure 4: Manufacturing plant in China
Source: Company
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STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS
OUTPERFORM: The stock's total return is expected to exceed a relevantbenchmark's total return by 5% or more over the next 12 months.
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