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Categories
| Glove makers ready for growing demand |
| Features | |||
| Written by Tony C H Goh | |||
| Monday, 13 July 2009 00:00 | |||
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Malaysian Rubber Manufacturers Association (Margma) president K M Lee tells The Edge that orders, especially from overseas, have picked up substantially since the beginning of this year, and most local glove manufacturers have been running at full capacity. Lee is also managing director of Top Glove Corp Bhd. “The process of consolidation is expected to continue, especially among the smaller players,” says Lee. However, most players are taking the path of organic growth, which they see as a safer option, he adds. An analyst, however, points out that the dilemma facing the industry is whether the pace of expansion through organic growth can keep up with the rapid rise in demand. Global consumption of rubber gloves is expected to increase by at least 10% this year, based on the estimated global demand of around 140 billion pieces last year. Interestingly, Top Glove, the world’s largest rubber glove manufacturer, and the No 2 player, Supermax Corp Bhd, have taken separate approaches towards meeting this uptrend. Top Glove is taking a classic organic growth strategy by bringing forward the completion dates of some of its new plants, including two factories in Klang, Selangor, that had been delayed. According to Top Glove chairman Tan Sri Dr Lim Wee Chai, the RM70 million capital expenditure (capex) the company has set aside for its fiscal year ending Aug 31, 2010, is part of its ongoing organic expansion drive to meet the growing demand and expanding the company’s global market share. “We target to achieve 30% global market share by 2012 from 22% currently,” says Lim. “However, we are also open to any good potential M&A, which if successful, will be an addition to our existing organic plan.” “With our strong balance sheet position, Top Glove is in a good position to look at both ways of expansion,” adds Lim. In 3QFY2009 ended May 31, Top Glove was in a net cash position compared to a net debt position a year ago. Supermax, on the other hand, took a big leap in 2005 by acquiring two listed glove companies, namely, APL Industries Bhd (APLI) and Seal Polymer Industries Bhd. Seal Polymer became Supermax’s wholly-owned subsidiary and was taken private in August 2007. However, APLI was problematic from the start due to myriad operational and financial troubles such as bad debts, asset impairment, inventory write-downs and losses due to inefficiencies. Supermax took RM16.7 million in impairment charges in 2008 from the investment and APLI was delisted in February this year. According to analysts, the troubles Supermax faced debunk the notion that M&A are the fastest and most efficient way to expand. “The debacle experienced by Supermax in its expansion drive has served as a lesson on the pitfalls that aggressive expansion through M&A brings,” says Farahnaz Ireena, an industry analyst at CIMB Securities. As for Kossan Rubber Industries Bhd, its managing director and CEO Lim Kuang Sia says Malaysian glove makers, with the advantage of superior infrastructure and better cost structures, have been doing better than other glove-producing countries in the region. He says Malaysian glove makers have been taking market share from Thailand, Indonesia and Vietnam over the last six to seven years, particularly from 2006 when major cost elements such as rubber and fuel prices were at their historical highs. “Thailand currently produces around 15% to 18% of global demand, down from 20% to 25% previously, while Indonesia, which used to supply about 15% previously, now produces less than 10%. In addition, proximity to ports and the raw material — latex — also translate into lower transport costs compared to the neighbouring countries,” says Kossan’s Lim. “So obviously, Malaysian glove makers have the upper hand over others and we are taking advantage of the troubles faced by manufacturers in Thailand, Indonesia and Vietnam,” he adds. He says the closing of plants and shrinking output have created fresh capacity for those manufacturers that are more resilient and robust. The effects of economies of scale and technological breakthroughs over the years have also helped manufacturers to lower their production costs and made gloves more affordable. Malaysian glove makers currently supply more than 65% of global demand, with Top Glove and Supermax together commanding around 33% of the market. Margma’s Lee says demand is expected to continue to surge on fears of new diseases breaking out. The local rubber glove industry generally stands out as a beneficiary when infectious diseases spread worldwide. During the SARS outbreak in 2003, which lasted about nine months, Top Glove experienced a 5% to 7% increase in demand for its medical gloves, or five billion to seven billion pieces. With or without consolidation however, the growing world population, better awareness of hygiene, fear of new diseases, more affordable healthcare and added regulatory requirements by the authorities, especially in the emerging nations, are expected to sustain the demand for gloves and Malaysia’s position as the global leader in the industry. This article appeared in Corporate page of The Edge Malaysia, Issue 763, July 13-July 19, 2009
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