TOP GLOVE CORPORATION BHD Investor Presentation 16 Aug 2017 Bursa Malaysia : 7113 SGX : BVA Reuters : TPGC.KL Bloomberg : TOPG MK ADR CUSIP : 890534100
Modest Beginnings Founded in 1991 by Tan Sri Dr Lim Wee Chai. Family owned a small rubber plantation and was involved in the rubber trading business. Top Glove commenced operations with 1 factory, 3 production lines and 100 staff. At that time, there were around 250 glove manufacturers in Malaysia following the surge in glove demand due to the AIDS epidemic. With oversupply and stringent quality standards imposed by the FDA, many players were edged out of the industry. Top Glove remained in business, and grew leaps and bounds, having set the good Business direction of producing high quality gloves at efficient low cost. Top Glove has emerged as the world s largest rubber glove manufacturer with:- 25% of the world market share. A sizeable production capacity of 48.0 billion gloves per annum. A listing on Bursa Malaysia (2001) and SGX (2016). Page 2 / 21
Steady Global Demand Growth World population estimate at 7.5 bil, average usage 26.8 pcs per population bil pcs 220 200 180 160 140 120 100 80 60 40 20 0 Estimate global demand growth at 6% to 8% pa 201 190 180 173 160 153 136 135 123 127 128 110 103 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E Source : Malaysia Rubber Gloves Manufacturer Association (MARGMA) Page 3 / 21
An Industry with Excellent Growth Potential Widely Used in Developed Nations, but Underused in Emerging Countries Developed countries (USA, EU28 and Japan) % of World Population % of Global Glove Consumption 13% 71% Other regions 87% 29% % of Global Glove Consumption by Region Source: International Trade Centre and Company Page 4 / 21
Per capita glove consumption 2014 pcs 180.0 160.0 166.0 Per capita glove consumption 2014 140.0 120.0 100.0 80.0 130.0 100.0 60.0 40.0 20.0 0.0 40.0 25.7 10.5 5.3 4.0 USA Australia EU Japan Brazil China India Global Source: HSBC Global Research Putting health in safe hands 8 March 2016 Page 5 / 21
Top Glove Global Customer Base Over 2,000 customers and growing. Comprising mainly distributors across 195 countries. A geographically diverse customer base. A preferred OEM manufacturer in every region. No single customer contributes more than 4% of revenue. Sales volume by geography 3QFY17 (Mar 17 to May 17) Region Avg growth rate for the past 3 years North America 10.6% Europe 10.0% Asia 9.8% Middle East 2.5% Latin America 3.7% Africa -8.5% Total 7.5% Page 6 / 21
Key Industry Drivers 1. An indispensable item in the healthcare sector As a protective barrier 2. Increasing hygiene standards and healthcare awareness Non-medical sector in developed countries Medical sector in developing countries 3. A growing ageing population With the elderly being more susceptible to higher-risk diseases 4. Progressively stringent health regulations Healthcare reforms: US, China Healthcare regulations: OSHA in US, EU- OSHA in Europe, SESI in Brazil 5. The emergence of new health threats E.g. A(H1N1), SARS, bird flu, ebola, bioterrorism, Anthrax Page 7 / 21
60% 50% 40% 30% 20% 10% 0% 7% 1% 55% 54% 26% 11% Towards a more balanced product mix in line with global demand. Nitrile increased by 839% over a 7 years period. Aligning Our Product Mix with Market Demand 49% 48% 46% 39% 36% 32% 28% 24% 31% 22% 24% 18% 19% 20% 14% 20% 20% 11% 6% 7% 6% 6% 8% 3% 2% 2% 2% 2% 2% FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 9MFY17 Nitrile glove Latex powdered glove Latex powder-free glove Vinyl / TPE / CPE glove Surgical glove 3QFY17 product mix by sales quantity TPE/CPE Surgical 5% 2% Vinyl 8% Powder-free latex 20% Powdered latex 28% Nitrile 37% Page 8 / 21
32 Manufacturing Facilities Regionwide 29 glove factories 550 production lines 51.9 billion pcs p.a. capacity 2 latex concentrate/processing plants supplying 60% to 70% of our latex requirements 1 porcelain hand mold factory Steadily expanding via organic and non-organic growth China Malaysia 26 glove factories 1 glove former factory Producing: Latex examination gloves Nitrile examination gloves Surgical gloves Household gloves Cleanroom gloves CPE/TPE gloves Former manufacturing 1 glove factory Producing: Vinyl gloves Thailand 2 glove factories 2 latex plants Producing: Latex examination gloves Latex concentrate Statistics as at Aug 2017 Page 9 / 21
Blueprints for Expansion Boosting nitrile capacity in tandem with growing demand Faster, more efficient and technologically advanced production lines Increased automation throughout the manufacturing process On-going facility optimization initiatives which include the construction of highlyefficient factories Glove Type No. of production lines Capacity pcs p.a. Current: 29 glove factories 550 lines 51.9 bil Target to commence operations by Expansion in progress : F31 (Klang, Malaysia) New factory Nitrile 30 lines 3.0 bil January 2018 F32 (Klang, Malaysia) New factory Nitrile 48 lines 4.8 bil December 2018 Total expansion by December 2018 78 lines 7.8 bil Total by December 2018: 31 glove factories 628 lines 59.7 bil Page 10 / 21
Cost breakdown Natural Rubber Gloves Nitrile Gloves A cost pass-through mechanism whereby both cost increases and savings to be shared out with customers. Continuously improving cost efficiency through intensive R&D initiatives. Page 11 / 21
Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 RM per kg Raw Material Price Trend Natural rubber latex price trend (RM/kg) 12 10 8 6 4 2 0 RM6.49 (17/09/08) RM7.75 (23/04/10) RM10.99 (11/04/11) RM6.45 (10/10/12) RM4.95 (17/03/14) RM5.02 (16/06/15) RM8.16 (02/02/17) RM5.53 (16/08/17) NR Latex & Nitrile Price (USD/KG) 7.5 6.5 5.5 4.5 3.5 2.5 1.5 0.5 Correlation between natural rubber latex, nitrile latex and crude oil prices (USD/kg) 112.79 3.61 82.92 2.91 103.02 2.07 78.4 97.53 2.05 2.02 1.85 1.71 107.76 1.60 1.41 92.82 105.52 140 120 100 80 54.03 59.95 48.88 60 47.71 39.3 41.43 40 2.03 1.48 1.52 33.63 1.29 1.34 1.30 20 1.34 0.97 0.76 1.15 1.29 0 Crude Oil Price (WTI) (USD/bbl) Crude Oil Nitrile NR Latex Note: NR Latex & Nitrile Latex based on 60% TSC Page 12 / 21
Latest 3Q17 results 3Q17 1 Mar 17 31 May 17 3Q16 1 Mar 16 31 May 16 Variance (3Q17 vs 3Q16) 2Q17 1 Dec 16 28 Feb 17 Variance (3Q17 vs 2Q17) Total sales (RM mil) 869.6 672.3 29.3% 851.5 2.1% EBITDA (RM mil) 118.7 93.7 26.7% 126.7 (6.3%) EBITDA margin 13.6% 13.9% 14.9% PBT (RM mil) 91.5 73.7 24.2% 102.7 (10.9%) PBT margin 10.5% 11.0% 12.1% PAT (RM mil) 77.5 62.8 23.4% 83.2 (6.9%) PAT margin 8.9% 9.3% 9.8% EPS (sen) 6.2 5.0 24.0% 6.6 (6.1%) Sales quantity down 1% vs 3Q16 and down 5% vs 2Q17. ASP up by 19% vs 3Q16 and 9% vs 2Q17 Natural rubber latex price up 79% vs 3Q16 and 19% vs 2Q17. Nitrile latex price up 41% vs 3Q16 and up 24% vs 2Q17. USD strengthened by 10% vs 3Q16 and weakened by 2% vs 2Q17. 3Q17 with natural gas price hike impact of 5% vs 3Q16. 3Q17 with minimum wage hike impact of 11% vs 3Q16. Page 13 / 21
External Factors : Quarterly Comparison Natural Rubber Latex (RM/kg) External 3QFY17 impact vs (quarterly 3QFY16comparison) 3QFY17 vs 2QFY17 79% 19% Nitrile Latex (USD/kg) USD vs MYR 41% 10% 24% 2% Avg Selling Price (USD) 19% 9% Natural Gas (RM/mmbtu) 5% 0.5% Minimum wage 11% 0% Positive impact Negative impact Page 14 / 21
Steady growth since listing Revenue CAGR Past 16 years since listing in 2001 : PAT CAGR Past 16 years since listing in 2001 : Average PAT margin Past 16 years since listing in 2001 : 23% 22% 9.5% For FY ended 31 August (in RM mil) 2009 2010 2011 2012 2013 2014 2015 2016 9M17 (unaudited) Sales 1,529.1 2,079.4 2,053.9 2,314.5 2,313.2 2,275.4 2,510.5 2,888.5 2,506.8 EBITDA 287.5 364.7 207.3 310.0 323.3 295.0 441.7 518.7 356.8 EBITDA margin 18.8% 17.5% 10.1% 13.4% 14.0% 13.0% 17.6% 18.0% 14.2% PBT 222.0 305.0 145.5 240.7 242.2 216.3 363.5 442.2 284.0 PBT margin 14.5% 14.7% 7.1% 10.4% 10.5% 9.5% 14.5% 15.3% 11.3% Taxation 53.9 54.6 30.3 33.4 39.4 32.7 82.3 79.8 49.6 PAT 168.1 250.4 115.1 207.3 202.8 183.6 281.2 362.4 234.4 PAT margin 11.0% 12.0% 5.6% 9.0% 8.8% 8.1% 11.2% 12.5% 9.4% # PAT Equity 169.1 245.2 113.1 202.7 196.5 180.5 279.8 360.7 234.1 ROE (%) 19.9 22.4 10.0 16.2 14.9 13.1 17.4 19.9 16.4* EPS (RM)** 0.15 0.20 0.09 0.17 0.16 0.15 0.23 0.29 0.25* * Annualised **Adjusted for bonus issue Page 15 / 21
Healthy balance sheet 9MFY17 31 May 17 FY2016 31 Aug 16 Net cash flow from operating activities (RM mil) Capital expenditure (RM mil) 177.7 306.9 433.7 234.1 As at 31 May 17 As at 31 Aug 16 Net cash and short term investment (RM mil) Shareholders equity (RM mil) Net assets per share (RM) Return on equity * Inventory turnover days Receivable turnover days Payable turnover days 95.3 1,907.1 1.52 16.4% 33 49 39 303.7 1,825.8 1.46 19.9% 34 44 42 Working capital turnover days * Annualised ** Reduction in cash balance due to higher working capital requirement s a result of higher raw material prices and higher capex in 1HFY17 43 36 Page 16 / 21
Dividend and payout ratio Dividend Policy : Payout ratio of 50% of PAT after MI Note: Dividend per share has been adjusted with the bonus issues Page 17 / 21
At 4,698% since IPO (16 years) With initial investment of 1,000 shares made during initial public offering price of RM2.70 on 27/03/01, the return is as follows: Date *share Price Number of shares held Total market Value Accumulated dividend received (RM) Cost of investment Capital appreciation Total s/holders return % (RM) (RM) (RM) (RM) 27-Mar-01 0.13 20,384 * 2,700-2,700 - - 02-Jan-13 2.875 20,384 * 58,604 6,825 2,700 62,729 2,323% 02-Jan-14 2.87 20,384 * 58,502 8,455 2,700 64,257 2,380% 02-Jan-15 2.30 20,384 * 46,883 10,086 2,700 54,269 2,010% 05-Jan-16 6.87 20,384 * 140,038 11,819 2,700 149,157 5,524% 04-Jan-17 5.41 20,384 * 110,277 13,348 2,700 120,925 4,479% 16-Aug-17 5.70 20,384 * 116,189 13,348 2,700 126,837 4,698% If the bonus issues and share split are not taken into consideration, the share price would have been RM116.19 per share. *adjusted for bonus issue and share split Top Glove list of Component Stock FBM Top 100 Index FTSE Bursa Malaysia ("FBM") Mid 70 Index MSCI Malaysia Small Cap Index FBM Emas Syariah Index FTSE4Good Bursa Malaysia Index [ESG Index] FBM Emas Index FTSE Bursa Malaysia Hijrah Shariah Index Page 18 / 21
Guiding principles for growth and success Top Glove s Business Direction, Ethics, Rules & Philosophies Must know, Must do, Must teach Business direction 1. To produce consistently high quality gloves at efficient low cost. Investment direction 1. To earn 2 healthy dollars and invest 1 efficient dollar. Business philosophies 1. We work for our customers; 2. We take care of the interest of our shareholders; 3. We ensure that our employees continue to contribute positively to the company and we care for their well-being; and 4. We work closely with our bankers, suppliers, business associates and friends. Business ethics 1. Honesty 2. Integrity 3. Transparency Business rules 1. Do not lose our shareholders money; 2. Do not lose our health; 3. Do not lose our temper; 4. Do not lose our customers. Page 19 / 21
Management Focus Moving Forward To use technology and further automate production line to reduce workers & improve quality and efficiency. Computerize the whole company s operation/ manufacturing. To invest and recruit staff that are: i. Intelligent ii. Energetic iii. Integrity Capture growth in emerging market demand Target 30% global market share in 2020 Page 20 / 21
Thank you Q & A Session www.topglove.com invest@topglove.com.my +603 3362 3098 Page 21 / 21