MARC has affirmed the rating of AID with a stable outlook on Englotechs Holding Bhd’s (Englotechs) Murabahah Medium Term Notes Programme of RM50.0 million. The rating affirmation reflects the company`s position as a leading manufacturer and exporter of industrial cotton work gloves in Malaysia, a foreseeable increase in demand for its products, consistent operating margins, and a rising revenue trend over the last five years. The rating is however moderated by increasing competition from China in the manufacturing of standard made gloves, rising trade receivables and inventory levels which resulted in higher debt levels.

With 15 years of experience in the manufacturing and trading of industrial cotton work gloves, Englotechs is recognised as an Original Equipment Manufacturer (“OEM”) for a few multinational companies operating worldwide. Its ability to manufacture various types of high quality gloves coupled with its established position as a reliable and dependant manufacturer has helped the group to widen its clientele base, a significant proportion of which are foreign based, over the years. The Group has also distinguished itself by continuously embarking on R&D as a means to widen as well as diversify its product base from standard-made gloves to various custom-made gloves.

Englotechs operates two plants, located in Padang Meha Industrial Estate, Kedah and Lianyungang in China. As at 31 December 2005, Englotechs fixed assets included 1,100 knitting machines with a maximum annual production capacity of more than 3.7 million dozen pairs of string knit gloves and more than 3.9 million dozen pairs of cut and sewn cotton gloves. Apart from increasing its production capacity and product base, the Group’s future strategy going forward will involve developing products under its own brand name.

The affirmation reflects the revenue growth from the increase in sales volumes as well as the introduction of new products in FY2005. Revenues increased to RM97.5 million for FY2005 from RM85.8 million for the same period in FY2004. Operating income for FY2005 increased to RM13.2 million from approximately RM12.0 million for the same period in 2004. The affirmation also considers the company`s adequate liquidity despite experiencing pricing and margin pressures from rising operating costs. As an export oriented manufacturer, 80% of Englotechs’s revenues are derived from exports with no revenue concentration in any particular country.

Of concern is Englotechs’s debt leverage ratio, which has increased over the years but has moved significantly higher to 1.02x in 2005. The company’s debt profile is skewed towards the long term consisting mainly of capital expenditure. This, coupled with rising trade receivables and inventory levels, could exert pressure on the company’s current rating if not checked.