Top Glove (SGX: BVA), which has a primary listing in Malaysia, held its secondary listing in Singapore back in mid-2016. The firm is the world’s largest rubber glove manufacturer with around 2,000 customers worldwide. The glove maker has 28 factories and exports to over 195 countries. There is much more to learn about Top Glove’s business. For that, we dipped (pun intended) to its annual report for its financial year ended 31 August 2016 (FY2016). From the report, I pulled out six key things about Top Glove that investors may want to learn about: 1. Historical growth 2. The product mix 3….
The firm is the world’s largest rubber glove manufacturer with around 2,000 customers worldwide. The glove maker has 28 factories and exports to over 195 countries. There is much more to learn about Top Glove’s business. For that, we dipped (pun intended) to its annual report for its financial year ended 31 August 2016 (FY2016).
From the report, I pulled out six key things about Top Glove that investors may want to learn about:
1. Historical growth
2. The product mix
3. All around the world
For the first three, head here.
4. Growth drivers
In the first point, we can see how Top Glove has been able to grow its revenue. To understand how the revenue growth came about, we can take a look at the company’s growth drivers. In the Chairman’s Annual statement, Tan Sri Dr Lim Wee Chai wrote:
“The volume growth of 11% compared to FY2015, was attributed to the Group having fortified its presence particularly in US and Europe markets, where nitrile glove sales increased by about 30% versus FY2015.
Sales of nitrile gloves comprised 32% of our total sales in FY2016 and in 4QFY16 alone, accounted for 34%. Over a 7-year period from 2010 to 2016, Top Glove’s nitrile glove sales volume surged by 861%.”
The nitrile gloves category has been a significant growth driver for Top Glove. Lim also pointed out that natural rubber gloves also grew, albeit at a slower pace, as Top Glove makes inroads into emerging markets.
5. Tough competition, tough customers
Top Glove may be the largest rubber glove supplier in the world, but it is not free from competition. Lim also remarked:
“Compared with FY2015, average nitrile prices fell by 6.7%, while average latex prices were generally flattish, decreasing by 0.2%. However, in line with industry norms, we have shared out exchange rate gains and savings from lower raw material prices with customers. Our selling prices have also been revised downward by about 11.6% throughout the year.”
Top Glove has had to hand over savings and exchange rate gains to its customers as part of what Lim calls “industry norms.” This comes on top of lower average prices for its nitrile gloves.
6. Will the market consolidate?
Lim believes that the tough level of competition in the rubber glove market will lead to consolidation. He mused:
“Increased competition may eventually result in market consolidation, which ultimately reduces competition as weaker players are edged out and allows the industry to recalibrate itself. Additionally, this represents potential M&A opportunities for us, while also providing the impetus for us to keep improving in order to stay relevant and competitive.”
Top Glove is aiming to gain a 30% global market share in the future. This will be achieved through a combination of both organic growth and mergers and acquisitions. Lim believes that Top Glove may be in the position to acquire other companies if the market starts to consolidate.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.