Top Glove Corp., a Malaysian manufacturer commanding a quarter of the world’s glove market, focuses on expanding facilities in Thailand to boost production capacities as water and worker shortages in its homeland disrupt the company’s expansion spree.
Top Glove has doubled its factory capacity in Phuket, Thailand this month and will also increase its output size by 100% at another plant in Songkhla that borders Malaysia, Chairman Tan Sri Lim Wee Chai said in an interview with The Star Online recently.
He also added that favorable tax breaks in Thailand and the ease of hiring workers prompted the company’s decision.
The company’s stocks also gained 0.94% in Kuala Lumpur.
During the interview at the company’s headquarters in SetiaAlam, a town outside of Kuala Lumpur, Lim said that the company has expanded largely in Malaysia but the higher risks have resulted in the company’s need to diversify.
“The Thai government is very supportive, they have an eight-year tax-free incentive; they don’t have foreign workers problem.”
Top Glove has suffered from rising costs in Malaysia with the doubling of foreign worker levies this year and employment policy flip-flops that have disrupted production. The Southeast Asian country is the world’s fifth-largest natural rubber producer, with gloves forming the bulk of rubber product exports.
Earlier this year, manufacturers had warned the government that sudden changes in policies as the nation tries to cut reliance on overseas labourthreaten businesses and jobs. Malaysia suspended the recruitment of overseas workers in February, only to lift the freeze partially on new foreign labour hires in May to four sectors including manufacturing.
Still, the country can’t continue to increase its intake of foreign labour, according to Mah Siew Keong, the plantation industries and commodities minister. The ministry, which oversees the rubber sector, is instead seeking incentives for more mechanisation to cut reliance on foreign labour.
Top Glove has 22 glove factories in Malaysia, two in Thailand and one in China, with a combined production capacity of more than 46 billion pieces per annum.
“We could have expanded much more in Malaysia if there hadn’t been any disruptions”, Lim said, adding that the business issues in Malaysia are not critical but make Thailand very attractive for the glove industry.
Malaysia’s largest glove makers, including Supermax Corp. and Kossan Rubber Industries Bhd., were among the biggest winners in 2015 as their dollar earnings were boosted by the ringgit’s drop to a 17-year low.
However, this year, they are among the country’s worst performers on a gauge of the nation’s top 100 companies as their shares have slumped at 29%.
Top Glove shares surged 200% last year. The stock is down 30% this year.“The ringgit has stabilised and last year’s extraordinary gains from dollar sales might not be repeated for this financial year,” Lim noted, saying that the company will still continue to grow at a normal pace.
Top Glove’s third-quarter profit tumbled 40% from the previous quarter, highlighting the fact that dollar sales gain were no longer being boosted by a weaker ringgit.
“The third quarter was the beginning of the new normal. The delivery times for our products are getting longer, which indicates that the oversupply situation is easing,” said Lim. Fourth quarter results of the company are expected to be announced next month. They are aiming for 10% growth in revenue in the next financial year, he said.
The company is still searching for possible mergers &acquisitions with other glove makers, but would only buy if they find value for money,” said Lim, who expects valuations to fall further with the ease of foreign-exchange gains.