Published October 9, 2009

Top Glove payout soars on record profit

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIA'S largest glove maker, Top Glove Corporation, plans to reward its shareholders with a bumper dividend payout of 22 sen per share or double the previous year's, following record earnings on the back of surging demand for rubber gloves.

H1N1 driven: Top Glove plans to boost its 19 factories by opening two more next year, with 16 production lines targeted for completion in Q1 and 16 more by July

Seen as a natural proxy for the heightened global demand for rubber gloves after the outbreak of the H1N1 virus this year, shares of Top Glove have doubled this year, yesterday rising another 18 sen or 2.25 per cent to RM8.15, versus the benchmark increase of one per cent.

In line with the industry, Top Glove's earnings have been rising steadily as fear of the H1N1 contagion drove orders. For the last quarter ended August, Top Glove's profit jumped 121 per cent to RM55 million (S$22.5 million) on revenue of RM427 million.

Full-year earnings improved 56 per cent to RM168 million while revenue increased 11 per cent to RM1.53 billion. Earnings per share came to 57.34 sen, up from 37.18 sen previously.

Top Glove's board has recommended a special dividend of six sen a share in addition to the final dividend of nine sen per share, in view of the 'good performance and stronger cash flow position' of RM197 million in cash and free cash flow of RM260 million. An interim dividend of seven sen a share had been paid earlier.

The proposed payout was the highest since the company was listed in 2001 and executive chairman Lim Wee-Chai was confident of continued growth and 'good profitable performance' in the current fiscal year.

Malaysian companies have barely been able to keep up with the surge in demand. Top Glove's plant utilisation came to 90 per cent in the last quarter while others claim near full capacity.

Where others are cutting back, glove makers are ramping up, albeit cautiously. Top Glove's 19 factories and their 355 production lines already churn out 31.5 billion pieces annually, but the company plans to open two new factories next year, with 16 production lines targeted for completion in the first quarter of next year and another 16 lines by July.

Even cost increases - owing to higher latex prices - have been successfully absorbed by buyers; with Top Glove having raised its average selling price by 7-11 per cent. Its profit after tax margin for FY09 rose by some 11 per cent - only in FY01 has the margin been better at 11.4 per cent.

Analysts say that its defensive earnings support higher valuations, and Hwang-DBS has raised its target valuation to RM8.50 based on 14 times price earnings.

Mr Lim, who controls 35 per cent of the company he founded, appears to have taken shareholder feedback to heart. It was at a media and analyst briefing last year that he had solicited views, and found a preference for fatter dividends and more bonus shares.

Small by global standards, the glove player's market capitalisation now stands at almost RM2.5 billion. Its free float is some 51 per cent.