Loan Appraisal Framework

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LOAN APPRAISAL

REPORT

Top Glove Corporation Berhad

12-May-13

Nguyen Canh Duong (22189467)

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Contents

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1.0 INTRODUCTION

This report explores the credit appraisal of a public listed company in the main board of Bursa

Malaysia, Top Glove Berhad.

Top Glove Berhad intents to expand its production capacity by building a new facility, which

would include a new plant, fittings and machineries. The new facility is expected to cost the

company RM20.0 million and would take 2 years to complete and commission.

having said that, analysis has been carried out to determine the eligibility of Top Glove

Berhad for the loan as requested. This credit appraisal report analyse its financial performance

for the past 3 years as well as the 6 Cs of credit evaluation, which include character, captial,

capacity, collateral, conditions and compliance.

2.0 COMPANY PROFILE

2.1 Company: TOP GLOVE CORPORATION BHD

Established in 1991 with only one factory and three production lines, Top Glove has since

grown by leaps and bounds to become the world's largest rubber glove manufacturer.

t was listed on the Malaysian bourse, Bursa Saham Kuala Lumpur on 27 March 2001. In a

short span of slightly more than a year, on 16 May 2002, Top Glove Corporation Berhad's

listing was successfully promoted from the Second Board to the Main Market of the Kuala

Lumpur Stock Exchange. (Top Glove has a shareholder fund of RM1.28 billion or USD409.7

million with an annual turnover of about RM2.31 billion or USD740.6 million as at financial

year ended 31 August 2012. It is also one of the component stocks of the FTSE Bursa

Malaysia ("FBM") Mid 70 Index, FBM Top 100 Index and FBM Emas Index with a market

capitalization of RM3.67 billion or USD1.20 billion as at 09 April 2013.)

In line with its objective of capturing a larger share in the world market, the company has

undertaken a rapid expansion of its capacity. Its manufacturing facilities which spread across

Malaysia, Thailand and China grew from 5 in 2001 to 24 presently. Top Glove exports to

approximately 1,800 customers in over 185 countries through its sales and marketing offices

in Malaysia, the United States and Germany.

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2.2 Date of incorporation 27 March 2001

2.3 Duration of existence 23 years (1991-present)

2.4 Objects of the company

To produce consistently high quality gloves with efficient low cost.

To earn 2 healthy dollars and spend 1 efficient dollar.

To strive to be the Worlds leading manufacturer with exellent quality glove products and

services that enrich protect human lives.

2.5 The business of the company manufacturing rubber glove manufacturer

2.6 The organizational structure

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2.7 Capital structure

2.71 Authorized capital: RM400 million or USD106.8 million

2.72 Paid up Capital: RM309,788,481

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2.8 Board of Directors, Position and Shareholding

Tan Sri Lim Wee Chai- Chairman of Top Glove Corporation Berhad.

graduated with a Bachelor of Science Degree with Honours in

Physics in 1982 from University Malaya.

Obtained his Master of Business Administration in 1985 from

Sul Ross State University in Texas, United States.

Aged 54 was appointed as the Chairman of Top Glove

Corporation Bhd on 4 September 2000.

founder of Top Glove Group of Companies which was

established in 1991 and was listed on Bursa Malaysia Securities Berhad on 27 March

2001. served as the President of the Malaysian Rubber Glove

Manufacturers Association (MARGMA) from 1997-1999. Prior to that, he served as the

Vice-President, Honorary Secretary and Treasurer of MARGMA for the past seven years.

was also the Director of the Association of Malaysia Medical

Industries (AMMI) and Board Member of the Malaysia Rubber Board in 1998 and 1999.

was elected as a Council Member of the Federation of

Malaysian Manufacturers (FMM) in 2010 and in 2011,

appointed as Council Member of The East Asia Business

Council (EABC) by the Minister of International Trade and Industry Malaysia.

prestigious accolade Master and Country Entrepreneur of

Malaysia for the Year, by Ernst and Young in 2004

Entrepreneur of the Year at the Asia Pacific Entrepreneurship

Awards 2008.

The BrandLaureate Brand Icons Leadership Award 2011

Outstanding American Alumnus Award of Malaysia in 2012.

Tan Sri Dato Seri Arshad Bin Ayub- Independent Non-Executive Director

Diploma in Agriculture from College of Agriculture, Serdang, Selangor in 1954.

Bachelor of Science (Hons.) Economics and Statistics from University of Wales,

Aberystwyth, United Kingdom in 1958

obtained a postgraduate Diploma in Business Administration from Management

Development Institute (IMEDE), Lausanne, Switzerland in 1964.

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Deputy Governor of Bank Negara Malaysia (1975 1977)

Deputy Director General in the Economics Planning Unit of the Prime Ministers

Department (1977 1978)

Secretary General in the Ministry of Primary Industries (1978)

Ministry of Agriculture (1979 1981) and Ministry of Land and Regional

Development (1981 1983).

Member of Justice Haruns Salaries Commission for statutory bodies..

Chairman of PFM Capital Holdings Sdn Bhd and Zalaraz Sdn Bhd (a family

company)

Tan Sri Dato Dr. Lin See Yan- Independent Non-Executive Director

graduated from the University of Malaya in Singapore; subsequently received three

postgraduate degrees from Harvard University, including a PhD in Economics; also

professionally qualified in UK as a Chartered Statistician; and he is also Fellow of The

Royal Statistical Society (London), IMF Institute (Washington DC), an US

Eisenhower Fellow, Professor of the Economics (Adjunct) at Universiti Utara

Malaysia, and Professor of the Business & International Finance (Adjunct) at

Universiti Malaysia Sabah.

Is an independent strategic and financial consultant and a British Chartered Scientist.

Chairman/President and CEO of Pacific Bank Group

Deputy Governor of Bank Negara Malaysia

Member of the Prime Ministers Economic Council Working Group

Member of a number of key National Committees on Higher Education; and

Economic Advisor, Associated Chinese Chambers of Commerce and Industry of

Malaysia.

sits on the Boards of several public listed companies in Malaysia including Fraser &

Neave Holdings Berhad

Lee Kim Meow- Managing Director

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Bachelor of Commerce Degree from the University of New South Wales, Australia,

majoring in Accounting, Finance and Information System, and a Bachelor of Law

Degree from the University of London, U.K.

15 years in established financial institutions and with a well known conglomerate withdiversified interest in the Asean region.

board member of the Malaysian Rubber Board (MRB) and the Tun Abdul Razak

Research Centre (TARRC) from 2010 to 2011.

immediate past President of the Malaysian Rubber Glove Manufacturers Association

(MARGMA)

currently, the Secretary General of the Asean Rubber Glove Manufacturers

Association (ARGMA)

also served as a Board member of the Malaysian Rubber Export Promotion Council

(MREPC) since 2002.

Puan Sri Tong Siew Bee- Executive Director

Bachelor of Science Degree with Honours in Computer Science from University Sains

Malaysia, Penang in 1983 and later obtained her Master of Business Administration

from Sul Ross State University, Texas, USA in 1985.

banking industry in the information technology field for more than ten (10) years. She

was formerly attached to United Overseas Bank Berhad and Utama Bank Berhad.

pouse of Tan Sri Lim Wee Chai and sister-inlaw of Mr Lim Hooi Sin, both are the

Directors and Substantial Shareholders of the Company.

Lim Hooi Sin- Executive Director

Bachelor of Science Degree in Management Science from Oklahoma State University, USA in

1985, Master of Business Administration Degree (Minor in Applied Statistic) from Arizona

State University, USA in 1986 and Charter Financial Consultant Diploma from American

College, PA, USA in 1990.

fourteen (14) years of his career with MetLife Financial Services, one of the largest insurance

& financial services company in the US.

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was a Management Trainee, Associate Branch Manager, Regional Marketing Specialist,

Agency Director and Director of Asian Market.

Director of AAAA (Arizona Asian American Association).

Founder of TG Medical USA, Inc. in 1994 with vast experiences in the United States glove

market.

Lim Cheong Guan- Executive Director

Graduated from University of Malaya with a Bachelor Degree in Accounting in 1990.

member of Malaysian Institute of Accountants and Malaysian Institute of Certified

Public Accountants.

began his career with Price Waterhouse in 1990 and subsequently held various key

positions in a number of public listed companies in Malaysia, which the business

activities spanned over manufacturing, plantation, trading and property development.

Currently, Mr Lim is also a Director of Malaysian Investor Relations Association

Berhad (MIRA) and Advisor to the Management Committee of Top Glove Foundation.

Sekarajasekaran a/l Arasaratnam- Independent Non-Executive Director

Diploma in Civil Engineering in 1951 from Technical College, Kuala Lumpur.

passed the Membership Examination of the Institution of Civil Engineers (ICE),

United Kingdom.

graduated with a Diploma in Public Health Engineering from the Imperial College of

Science & Technology, United Kingdom in 1968.

was with the Public Works Department as the Technical Assistant of Waterworks until

1959

Assistant Resident Engineer, Executive Engineer and Waterworks Engineer from 1960

to 1966.

Ministry of Health in 1968 as a Senior Public Health Engineer and was promoted to

Chief Public Health Engineer in 1972.

In 1980, he was the Director of Engineering Services, a position he held until 1983.

Lim Han Boon- Independent Non-Executive Director

An accountant by profession and is currently managing his own business.

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Eld various senior positions in a few companies listed on the Main Market and ACE

Market of Bursa Malaysia Securities Berhad.

As more than twenty (20) years of experience in areas of transport and maritime

logistics industry having worked for Kontena Nasional Berhad, Kannaltec Berhad,Northport Malaysia Berhad and NCB Holdings Berhad.

A member of the Malaysian Institute of Accountants, the Chartered Management

Institute, United Kingdom, fellow of the Association of Chartered Certified

Accountants, United Kingdom

holds a Master of Business Administration Degree from the University of South

Australia, Australia.

attended the Harvard Business School Senior Management Development Program.

A committee member of Outsourcing Malaysia, a Chapter of PIKOM, the National

ICT Association.

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2.9 Senior Management

2.10 Bankers and Auditors

The external auditors are Messrs. Ernst & Young and Messrs. William C.H. Tan

Major Bankers:

Ambank Berhad

Malayan Banking Berhad

3.0 The Financial PerformanceFinancial highlights

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***Details at appendix 1 & 2

4.0 The Proposed Project

4.1 The proposed project

In order to meet the rapidly growing demand from international market, Top Glove

Corporation Bhd aims to expand its production capacity by building a new facility, which

would include a new plant, fittings and machineries. The new facility is expected to cost theTop Glove Corporation Bhd RM20.0 million and would take 2 years to complete and

commission.

4.2 Location: Jln Teratai, 6th Miles, Off Jln Meru, 41050, Klang, Selangor

D.E. Malaysia.

Title no: NC 12345

Lot no : 4968

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Mukim: Damansara

Land area: 1.2 hectare

Ownership: free hold

Land condition: commercial

Encumberances: NO

4.3 Description of proposed project site:

The project site was acquired by Top Glove Corporation Bhd in 2010. Expressway, LDP,

Kulala Lumpur Shah Alam Expressway (KESAS), Federal highway. Highly.The project is

called Factory 11. following the success of the project site, Top Glove Corporation Bhd is

confident that this will be another success, bringing in employment opportunity for the locals

and improving living standard in the region as well.

It is strtegically located.

Flat land, close to Subang Skypark Terminal, Sime Darby Medical Centre Ara Damansara.

Easily accessible from major highway North Klang Valley

5.0 Capital & Financials

5.1 Total cost of project:

Total cost of Factory 11 includes only land refinishing and construction cost as the land has

been acquired earlier as mentioned in 4.3. Following is the cost breakdown:

Categories Proportion (%) RM

Material 60% 12,000,000

Labour 40% 8,000,000

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No. Items Unit (no.) Cost (RM)

1 Construction of

main buildings

1 14,000,000

2 Miscellaneous 1 6,000,000

Total 20,000,000

Therefore, the estimated total cost is RM 12,500,000 and should not exceed this amount.

5.2 Financing of proposed project: 70% equity, 30%debt

No. % of financing Proportion of Financing (RM)

1 Equity Financing 14,000,000

2 Debt Financing 6,000,000

5.3 Returns from proposed project

**note: project has 2 phases. Each will cost RM10,000,000

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6.0 Capacity

6.1 Repayment of loan (6.5%)

http://dailycalculators.com/npv-calculator

6.2 Tenure of loan: 7 years

6.3 Sources of repayment:

Payment streaming from Top Glove as well as the revenue streaming project itself.

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7.0 Collateral

7.1 Collateral offered

To increase the bank confidence that the loand will be paid as promised. Top Glove

Corporation Berhad uses its other operating project to pledge as collateral.

Top Glove Factory 4. Address: Lot 5987, Jln Teratai, 5th Miles, Off Jln Meru, 41050, Klang,

Selangor D.E. Malaysia.

7.2 Value of collateral: RM 12 million

7.3 Loan to Value: 1:2

7.4 State encumberances (if any): NA. Loan obtained to acquireFactory 4 has been fully paid.

8.0 Conditions

8.1 External conditions (economic)

The Malaysian economy is clearly on track to achieve high income and advanced nation

status by 2020. Real GDP grew 5.6% in 2012, surpassed consensus forecasts of a little over

5.0% and the Treasury's 2013 Budget forecast of between 4.5 - 5.0%.

Bank NegaraGovernor Tan Sri Dr Zeti Akhtar Aziz expects growth to be sustained on the

back of higher domestic demand and an improvement on the exports front as the global

economy recovers. Zeti said private investments were expected to grow 15.6% this year, led

by investments in the services sector while private consumption growth would remain firm at

7.1% backed by income growth and stable employment prospects.

Despite the ongoing economic crisis in Europe, the demand for rubber glove has remained

intact. The healthcare sector continues to be resilient as gloves are deemed as basic

necessities. There are still steady demand even from Europe and boundless new opportunities

available to the industry, particularly in emerging markets. Demand is set to increase about

8% to 10% annually as the healthcare standards in these markets improve.

This is evidently reflected in the increased trend in total healthcare expenditure as a

percentage of Gross Domestic Product (GDP) in several countries. The United States,

which is the largest glove importer, has been seeing an uptrend in total healthcare expenditure

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as a percentage of GDP since 2000. The United States healthcare reform will spend more on

healthcare, both per capita and as a share of GDP, than any other country in the world.

According to the World Health Organization, total healthcare expenditure in the United States

was 16.2% of its GDP in 2009, the highest in the world. The United Kingdom and major

European countries with healthcare spending of an average of 10.1% of GDP are experiencing

similar trends, and it is expected that other countries would raise their hygiene standards

eventually. Rising standards of living in Brazil, China and India with healthcare spending of

9.0%, 4.6% and 4.2% respectively have posted an increasing healthcare spending trend. These

figures reflect tremendous strong growth opportunities for the rubber glove industry.

8.2 Internal conditions: Top Glove has been ratedFor the financial year ended 31 August 2012, the Group recorded revenue and net profit of

RM2.3 billion and RM207.3 million respectively. These represent a 13% increase in revenue

and 80% increase in net profit over the results recorded in the preceding financial year.

The Group had on 14 June 2012 declared an interim single tier dividend of 7 sen per share

amounting to RM43.3 million in conjunction with the financial results announcement for the

third quarter ended 31 May 2012. Payment of the interim dividend was made on 19 July 2012.

On a full year dividend basis, the 16 sen per share represents an increase of 45% over last

years dividend of 11 sen per share and a total dividend payment ratio of approximately 50%.

Research and development (R&D) is a cornerstone for the success of our business. We

invest considerable resources into developing new products and services which are market

and customer driven. The research and development process is driven by teams of R&D

employees, focused on consistently producing high quality gloves at efficient low cost. By

March 2035, we will set up an advanced R&D center based at factory number 25, which is

currently under construction.

9.0 Compliance IssuesThe Board currently comprises nine (9) members, made up of five (5) Executive Directors

including the Chairman and Managing Director and four (4) Independent Non-Executive

Directors. The roles of the Chairman and the Managing Director are distinct and separate so

as to ensure balance of power and authority. The composition reflects a balance of Executive

Directors and Non-Executive Directors (including Independent Non-Executive Directors)

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such that no individual or small group of individuals can dominate the Boards decision

making. A brief description of the background of each Director is presented on pages 8 to 12

of this Annual Report.

The Board has identified Mr. Sekarajasekaran a/l Arasaratnam as the Senior Independent Non-

Executive Director of the Board to whom concerns may be conveyed where it could be

inappropriate for the concerns to be dealt with by the Chairman and Managing Director

The Chairman is primarily responsible for the orderly conduct of the Board Meetings and

ensure effectiveness of the Board and the Managing Director will assist the Chairman in the

effectiveness of implementation of Board policies, making operational decisions and

monitoring the day-to-day running of the business, including defining the limits of the

managements responsibilities. The Executive Directors are responsible for the day-to-day

operations of the Group whereby operational issues and problems are discussed, major

transactions and matters relating to the Group are reviewed and also to formulate operational

strategies.

The Non-Executive Directors are to deliberate and discuss policies and strategies formulated

and proposed by the management with the view of the long-term interests of all Stakeholders.

They contributed to the formulation of policies, and decision-making using their expertise andexperience. They also provide guidance and promote professionalism to the management.

The Independent Non-Executive Directors fulfill a pivotal role in corporate accountability;

providing independent and unbiased view, advice and judgement to ensure a balanced and

unbiased decision making process to ensure that the long term interests of all Stakeholders

and the community are well protected. Clear demarcation of duties, responsibilities and

authority are being practiced by the Board.

10.0Justification for the loan

Character

The board of directors are very experienced in the industry as well as their own respective

field. Besides, they are very well known and repectable figures in the industry as much as in

the world in the country.

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Capital

Top Glove Corporation has shown that they are committed and capable by providing 70% of

the project which is equivalent of RM14,000,000. The loan of RM6,000,000 only makes up

the remaining 30%. In addition, the project forecasts a positive NVP of RM404,660.76

indicating the project is profitable. It addtion, it is assume that the IRR of 6.85% is inflated

and not a good indicator because the cost of land is not taken in the calculation. It was

acquired in 2010.

Capacity

The pay-off date is on June 2020. The loan is payable monthly for 7 years. By studying the

groups revenue generated from the project and equity in hand, the loan seems payable by Top

Glove Corporation Berhad and is not likely to default.

Collateral

The Top Glove Factory 4 offered by Top Glove Corporation Berhad as collateral is eligible

and not own by any other entities. Besides, the value of the collateral is sufficient. Loan to

value is 1:2.

Conditions

The companys performance is somewhat independent on the national economy as its export

activities is significant. Having said that, the national economy is also performing well as

mentioned earlier. Thus, growth prospect of the company is positive.

Compliance (above mentioned)

11.0Loan Decision and Loan structuringAll the 6 Cs requirements have been fulfilled based on the evaluation done above, thus the

loan of RM6,000,000 should be approved under these terms and conditions.

Periodic payment of RM89,097

Interest Rate: 6.5%

Loan period: 7 years

Scheduled number payments: 84 (monthly basis )

If Top Glove Corporation follows closely to these terms and conditions, it is almost certain

that they would settlet this loan within the agreed time frame of 7 years and this would benefit

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the bank. Top Glove Corporation Berhad is also a good company and has a strong credit

record (no default). Thus, it has high creditworthiness.

12.0ConclusionsThe loan is approved as the company has low risk of default based on the information studied.

The indicators examined seem to provide enough comfort for the loan for the loan and this

would be a benefit.

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Appendix 1 : Income Statements 2012, 2011,2010

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Appendix 2: Financial Positions year end 2012, 2011, 2010

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Loan Appraisal Framework

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