MARC has affirmed the short and long term ratings of MARC-1ID and AA-ID respectively with a stable outlook for Top Glove Corporation Bhd’s (“Top Glove”) Islamic Commercial Papers (“ICP”) Programme of up to nominal value RM100 million and Islamic Medium-Term Notes (“IMTN”) Programme of up to nominal value RM100 million. The affirmation reflects the group’s position (as the world’s largest rubber glove manufacturer) and its solid operating performance. These strengths are tempered to some extent by its aggressive capacity expansion, the competitive nature of the industry, raw material price volatility and the moderate threat of substitute products.

On 18 August 2006, Top Glove’s ratings were placed on MARCWatch with a developing outlook pursuant to revelations that approximately 2,000 of the company’s foreign workforce had expired work permits. The rating watch was lifted on 11 October 2006 upon confirmation from the group that the issue had been resolved with the Immigration Department and measures have been put in place to avoid a recurrence of such incidents. 
 
The group’s principal activities are in the manufacturing, trading and exporting of various types of gloves. Its main product, examination gloves, is widely used in the medical industry globally. As at August 2006, Top Glove had a production capacity of 22.0 billion pieces of gloves per annum derived from 12 glove manufacturing factories located in Malaysia, Thailand and China. The group’s business profile is supported by the fact that it has 750 customers (2005: 630) in more than 175 countries (2005: 160). Currently the group has a global market share of approximately 19.6%, which it intends to increase to 25.0% by December 2007 through aggressive expansion plans and/or acquisitions.

At present, alternatives to rubber gloves exist in the form of gloves made from vinyl and nitrile with no protein content. However, MARC sees no credible threat from these substitute materials given their current limitations in terms of contamination barriers, feel and biodegradability.

An area of concern is the rapid expansion in production capacity that Top Glove and other major glove manufacturers are currently undergoing as a result of favourable demand on the back of growth in the global medical industry. This may result in overcapacity in the industry and consequently depressed prices.

Operationally, Top Glove purchases its requirements for latex (its main raw material) on a forward basis, to ensure adequate supply and to hedge against price volatility. The group has also been able to pass on the bulk of price increases to its customers thus maintaining their profit margins. The recent completion of Top Glove’s concentrate latex plant in Hadyai, Thailand with a capacity to supply 40% of its raw material requirements has positive long-term implications for supply risk mitigation.

Top Glove has consistently demonstrated strong revenue and profitability growth over the past five years (2001 till 2005) registering a compounded average growth rate of 46.6% per annum in tandem with the increase in production capacity as well as increase in its global customer base. Operating margins have been maintained at double digit levels. The group’s recent growth strategy has resulted in increasing leverage levels. MARC expects future expansion and/or acquisitions to be prudently funded so as not to undermine its financial fundamentals.