Industry Analysis

Industry structure and Profitability

Malaysia is the world’s leading glove producer as it supplies about 240 billion pieces of rubber gloves globally, meeting the world demand of
almost 70% of 360 billion pieces in 2020. The number of new industry players in glove sector has increased and is seen setting up glove
manufacturing facilities around Malaysia due to the spike in demand amidst Covid-19 pandemic.

In particular, Top Glove claims to be the world’s largest glove manufacturer in the world, while Hartalega claims to be the world’s largest nitrile
glove manufacturer in the world.

Below is a comparison of the major glove manufacturers in Malaysia, in terms of Revenue, Earnings before interest & Tax (EBIT), Asset and
capital expenditure

In RM (Billion) Top Glove Hartalega Kossan Supermax

Rubber

Revenue

2021 16.36 6.70 6.63 7.16

2020 7.24 2.92 3.64 2.13

2019 4.80 2.83 2.22 1.54

2018 4.22 2.41 2.14 1.30

In RM (Billion) Top Glove Hartalega Kossan Supermax
Rubber

Earnings before interest & Tax (EBIT)

2021 10.0 3.82 3.74 5.02

2020 2.17 0.56 1.44 0.68

2019 0.42 0.56 0.28 0.17

2018 0.52 0.53 0.25 0.16

In RM (Billion) Top Glove Hartalega Kossan Supermax

Rubber

Net Assets

2021 7.22 6.87 4.03 4.89

2020 6.19 3.31 2.38 1.55

 2019 2.55 2.99 1.42 1.13

2018 2.40 2.63 1.31 1.02

In RM (Billion) Top Glove Hartalega Kossan Supermax

Rubber

Capital Expenditure

2021 1.36 0.36 0.22 0.45

2020 0.82 0.25 0.18 0.19

2019 0.62 0.43 0.22 0.11

2018 0.46 0.26 0.32 0.06

In our industry analysis to understand how each company in the glove industry does, we calculate the relevant ratio in order to obtain an
overview of how the companies compare with each other’s. The segment are categories by following figures:

· Four years revenue growth

· Average EBIT margin

· Four years EBIT profit growth

· Average return on asset

· Average capital intensity

· Average capital intensity

Annual revenue growth over 2018 to 2021 time frame is calculated as follow:

The EBIT margin is calculated by linking operating income and revenue. To gain an idea of capital intensity, capital expenditure are divided by
revenue

In RM Billion Top Hartalega Kossan Supermax

Glove Rubber
Revenue growth CAGR 96.90 % 66.74 % 76.02 % 134.7 %

EBIT growth CAGR 347.2 % 168.5 % 286.8 % 460.1 %

EBIT Margin (average) 28.04 % 29.49 % 30.07 % 31.35 %

Return on asset (average) 151.0 % 288.9 % 160.1 % 142.5 %

CAPEX/revenue 9.99 % 8.75% 6.43 % 6.60 %

Based on this figures, it becomes clear that all companies in the glove industry show significant increases in revenue growth. This shows all
companies in the glove industry gain increasing in sales volume, as well as business expansion trends. From the table, Supermax shows the
highest percentages on revenue growth followed by top glove. This literally indicates both companies have the healthiest sales in the industry.
Supermax also shows highest percentages on EBIT growth followed by top glove, this showing this both companies having highest profitability
during measured years. All companies show more than 20% average EBIT margin which shows all companies having more than good margin.
Supermax having the highest and followed by Hartalega. Hartalega shows the highest average return on assets followed by Top Glove. This
shows that both companies utilized their assets to make profit. Top Glove shows the highest Capex intensity ratio, 9.99% which indicates Top
Glove needs to spend high on their capex to maintain and increase the revenue growth. This segment also shows Top Glove having the largest
amount of capital expenditure by far, in absolute as well as in relative terms, as well as being aggressive on their business expansion.

The growing demand for disposable gloves, especially from the healthcare industry amidst the ongoing COVID-19 pandemic, along with the
rising awareness regarding healthcare-associated infections, is expected to fuel the market growth. The healthcare sector in major developing
economies is anticipated to witness substantial growth on account of several factors, such as increasing investments in both the private and
public sectors, rising population, the high influx of migrants, and the growing geriatric population. Furthermore, rising healthcare expenditure is
projected to boost the growth of the healthcare sector, which, in turn, is estimated to augment the demand for disposable gloves.

Consumer demand grew along with the healthcare industry affluence for most of the 2018 to 2021 year. This has meant that the glove industry
has typically experienced significant growth without having to resort to high levels of price competition in an effort to steal market share from
competitors.

Ideally, a company should demonstrate a mature, large business with sufficient free cash flow that will permit the company to finance its
prospering growth. In this case, Top Glove business shows the largest capital needs while being able to deliver above average growth and
appears to be growing strongly without consuming excessive cash.
The long term success and profitability of the glove manufacturers will depend on the efficiency and smart strategies of the companies’
management team. Some of the indicators offer some ideas on the strength of the management teams.

Among the glove manufacturers investigated, it is shown that Hartalega has the highest return on asset, meaning it earns the most profit per
unit of asset. Also it has the lowest cost-to-income ratio, meaning it is able to control operational cost to the lowest possible level. Increasing
implementation of automated production lines decreases labour cost. In addition, Hartalega uses empty oil palm fruit bunches as biomass fuel
to generate heat for production processes, which decreases power cost of the manufacturing plants.

Also, noted Top Glove and Hartalega invest significantly on capital expenditure in order to increase production capacity. This could decrease
the per unit production cost of the gloves and in turn increase profitability

Cash Flow Analysis

2 commons measurements in Cash Flow Analysis used by analyst are as below:

a) Free Cash Flow Analysis
b) Cash Flow Adequacy Analysis

Free Cash Flow Analysis

Year Net Operating Cash Flow Change in Net Operating Asset Free Cash Flow2 (RM’000),
(NOPAT) (RM’000), A (NOA)1, (RM’000), B C = A-B

2019 526,191 568,143 + 555,53 + 16 -3,440 - 8,565 -85,516

= 611,707

2020 3,455,581 806,400 + 9,455 + 32 + 28 - 763 - 2,647,080

6,651 = 808,501
 2021 7,826,933 1,334,018 + 554 + 207 + 546 - 1,258 6,492,866
= 1,334,067

Table of Analysis 1 - Free Cash Flow for Top Glove Bhd

Note 1: Net Operating Assets element are taking the difference of Purchase and Proceeds from Disposal of PPE, Land Use Rights, Intangible
Assets and Biological assets,
Note 2: the method of FCF will be NOPAT - Change in NOA, dividends are not considered in the calculation.

Chart of Analysis 1 - Net Operating Cash Flow, Net Operating Asset and Free Cash Flow for Top Glove Bhd

Commentary on Free Cash Flow

Free cash flow is the measurement of balance after net operating cash flows after minus working capital expenditure incurred during the
operation. In this particular calculation, our team i) excluded Dividends calculation but ii) used the difference between Purchase and Proceeds
for Capital expenditure. From the analysis Free Cash Flow, the results allow us to measure the strength of TopGlove in managing its operation
whilst simultaneously allowing current and future shareholders to evaluate the company in managing it cash flow and subsequently allowing the
decision such as dividend payment (more or less if not agreed or fix), buyback of own stock and investment decision to diversify the income
and risk distribution

Based on net operating cash flow, Top Glove demonstrated a significantly high increase from RM526 Million in 2019 FY to RM3.455 Billion in
2020 FY and further RM7.830 Billion in 2021 FY, with the accumulative increase of 93.28% over 3 FYs . Observed almost 7 times jump from
2019 to 2020 and 2.25 times from 2020 to 2021. Potentially this is contributed by good revenue generated on the sales reflecting the demands
of Top Glove’s products during COVID-19 era. On other hand, though the capital expenditures of the company increased year-on-year, the
rates are 1.33 and 1.65 times for the period of 2019-2020 and 2020-2021 respectively, much lower compared to the jumps observed on Net
Operating Cash Flow. As a result, Free Cash Flow of Top Gloves group moved from Negative -RM85 Million (FY19) to RM2.647 Billion (FY20)
and further RM6.492 Billion (FY21), a significant 32x and 1.45x over the periods. Most credible contributors during this period were from
revenue of sales during COVID-19 era as reflection from market demands for Top Glove Medical and Health related products such as Medical
Glove and Face Masks.
Cash Flow Adequacy Analysis

Year Net Debt Dividend Inventori Sum of Net Sum of Sum of Sum of Sum of Cash Flow
Operating Payment Paid3 es operating Change in Dividend Debt Inventori Adequacy
Cash (RM’000) (RM’000) Addition5 Cash flow Net (RM’000) Payment es Ratio4
Flow (RM’000) (RM’000), Operating ,F (RM’000) Addition (RM’000)
(RM’000), D Asset6 ,G (RM’000) =D/
A (NOA) ,H (E+F+G+
(RM’000), H)
E

2019 526,191 1,162,688 220,090 -124,963

2020 3,455,581 1,196,819 374,270 100,071 11,808,705 2,754,275 6,101,961 2,716,177 -752,135 1.09

2021 7,826,933 356,670 5,507,601 -727,243

Table of Analysis 2 - Cash Flow Adequacy Ratio for Top Glove Bhd

Note 3: Dividend Paid include on Ordinary Shares and Non-Controlling Interest

Note 4: Cash Flow Adequacy Ratio is calculated using Three year sum of Net Operating Cash over Three year sum of; Capital Expenditure
(Change in NOA), Dividend, Debt Payments, and Inventories Additions.
Note 5: Sum of inventories Addition are extracted under Changes in Working Capital
Note 6: Sum of Change in Net Operating Asset are cumulative of value of B, Change in Net Operating Asset (NOA) from Table 1.

Commentary on Cash Flow Adequacy Ratio

The Cash Flow Adequacy Ratio determines the cash flows generated by operating activities in a given period are sufficient to pay off 4 main
elements namely Capital Expenditures (Change in NOA), Inventories Additions, Debt and Dividend payments. In our calculation, the team
decided to take 3 years sum to generate a ratio for assessment. With a cash flow of 1 or higher, the company is expected to be able to meet
the demand of pay off. For Top Glove Berhad, the ratio of 1.09 indicates their capability to meet this based on a 3 years sum.

Zooming in the detail analysis for Top Glove, strong Net Operating Cash Flow is the primary reason that allows the company to cover their
operations without requirement for additional external financing. Worth to mention, this was achieved despite an increase of dividends payment
throughout the period of 3 years, particularly in FY of 2021. As a group we believe similarly to previous assessment of Free Cash Flow, good
jumps of revenue as a result of COVID-19 related products, does help in positioning Top Glove to be in a current good spot. On the other hand,
for forward looking beyond the pandemic era, Top Glove will be required to sustain and explore more cash flows generation activities and
potentially more stringent dividend policy payout as an act of balance.

Summary
Key Pointers:
1) Cash Flow Analysis conducted for Top Glove Berhad for a period of 2019 to 2021, 3 financial years using 2 analysis, namely Free
Cash Flow and Cash Flow Adequacy Ratio
2) From the outcome of Free Cash Flow analysis, the team observed Top Glove’s Free Cash flow improved over the period of 2019 to
2021, from -RM85mil, to RM6.5bil.
3) From the outcome of Cash Flow Adequacy analysis, the team observed Top Glove’s Cash Flow Adequacy ratio over the period of 2019
to 2021 are healthy with more than 1 ratio, however, the absolute number is still close to 1
4) Observed significant changes took place for Top Glove and whole industries 2020 and 2021, potentially fuelled by the pandemic years
of COVID-19
SCOPE 2 : MDA ANALYSIS

2019 2020

Sales Revenue RM4.8b RM7.24b

% Increase from Previous Year 13.70% 51%

Profit After Tax RM367.5million RM1.79b

Sales Volume (Pieces) 53.5b 62.1b

Sales Volume by Geography Africa – 3% Africa – 3%

Middle East -7% Middle East -6%

Japan- 7% Japan- 8%

Latin America – 10% Latin America – 8%

 Eastern Europe – 15% Eastern Europe – 17%

Asia ex-Japan – 15% Asia ex-Japan – 19%

Western Europe -16% Western Europe -17%

North America -27% North America -22%

Product Mix by Sales Revenue TPE/CPE – 1% TPE/CPE – 1%

Nitrile – 46% Nitrile – 53%

Latex Powdered -21% Latex Powdered -17%

Latex Powder Free – 18% Latex Powder Free – 19%

Surgical-12% Surgical-8%

Vinyl -2% Vinyl -2%

Corporate Development

Current Factory 33 glove factories 36 glove factories

Capacity (pcs per annum) 64.0 bil 90.0 bil

Total Dividend Payout 7.5 sen per share 11.8sen per share

Payout ratio 53% 55%

CHALLENGES

1. Sharp spike in natural rubber latex prices Imposition of Withhold Release Order(WRO) by
U.S Customs and Border Protection on 2 of
Group’s subsidiary

2. Competition – intensified both natural latex COVID-19

and nitrile glove segment

3. Implementation of minimum wage effective

1st Jan 2019

4. Hike in gas and electricity tariffs

ACHIEVEMENT
 1. Refurbishment of existing factories with Great improvement in its labor related issues
advanced production lines and there is no child labor, no excessive OT, no
working on rest days and no confiscation of
passports across its operation

2. Construction of several new factories and a Remediating its migrant workers (RM136mil)
facility in Vietnam with respect to recruitment fees previously paid
by the migrant workers to agents or other party.

3. Year of HumanisationTalent Recruitment

and, Talent Development

2.1 Outlook

2.1.1 Sales Revenue Analysis

Top Glove recorded an increase of 13.70% on the sales revenue on 2019 with RM4.8bil compared to previous year. The sales revenue
continues to soar high by 51% more in 2020 with RM7.24bil was recorded as result of worldwide surging demand on latex gloves due to Covid-
19. In 2019 the profit after tax recorded was at RM367.5mil and the company continues to enjoy larger profits on the following year with
RM1.79bil profit after tax.
The company produce sales of 53.5bil pieces of the products in 2019 whereas in 2020 the products sold was at 62.1bil pieces. The market
segment segregated by eight (8) sections ; Africa, Middle East , Japan, Latin America, Eastern Europe, Western Europe, Asia excluding Japan
and North America. The percentage of sales volume in Africa remained the same at 3% for both 2019 and 2020, whereas it sees a 1% drop for
Middle East segment from 7% to 6%. Japan sees an increment of 1% from 7% to 8% while quite significant drop of sales by percentage can be
observed in America where Latin America recorded a 2 percent decrease from 10% in 2019 to 8% in 2020. A similar trend is shown for North
America with a significant drop of 5% from 27% in 2019 to 22% in 2020.

The sales revenue recorded are contributed by their six(6) main segments of product mix namely nitrile, latex powdered, latex powder free,
surgical, vinyl and Thermoplastic Elastomer (TPE)/Cast Polyethlene (CPE) gloves. The major product is Nitrile which made up of 46% of their
sales revenue in 2019 and increased to 53% in 2020. Second largest product is the Latex Powdered where it contributed 21% in 2019 ranked
in second but fell to third place in 2020 with only 17%. The Latex Powder free product was at 18% in 2019 but rose to 19% in 2020 emerged as
the second biggest cake in the total revenue. Their surgical products shown a decreasing trend from 12% in 2019 and down to 8% in 2020.
Vinyl products only represent a small percentage at 2% for both 2019 and 2020 and their lowest segment is on Thermoplastic Elastomer /Cast
Polyethlene (TPE/CPE) gloves at only 1% for both year.

2.1.2 Corporate Development

Top Glove has been consistently growing its capacity to increase its production to cater global demand worldwide. As at 2019, they have thirty
three (33) nos. of glove factories and increased their number to thirty six (36) factories in 2020.This has significantly increased their production
capacity from 64billion pieces per annum in 2019 to 90billion pieces per annum in 2020. This growth of production is driven by the demand
caused by Covid-19 pandemic in 2020 . The major jump in revenue for 2020 has subsequently resulted to higher total dividend payout from
7.5sen per share from 2019 to 11.8sen per share . The payout ratio has increased from 53% in 2019 to 55% in 2020.

2.1.3 Challenges
Despite recording an increasing trend each year for their revenue, there are still challenges they have to face in the industry. The whole world
saw the sharp spike in natural rubber latex prices in 2019. As they relies heavily on rubber materials for most of their products, this has
increased their cost as well. The market also saw an increase in competition thus further intensified both natural latex and nitrile glove segment.

Scope 3: Financial Statement analysis – trend, ratio, comparative etc.

3.1 Liquidity,Capital Structure and Solvency Ratios.

3.1.1 Liquidity Ratio

2020 2021

Current Ratio v 2.01 1.98

2020 2021

Acid-Test Ratio v 1.73 1.4

2020 2021

Collection Period v 40.57 Days 15 Days

2020 2021

Day to Sell Inventory v 47.62 Days 57.34 Days

3.1.2 Capital Structure and Solvency Ratio

2020 2021

Total Debt to Equity k 0.41 0.35

2020 2021

Long-term debt to equity k 0.06 0.05

2020 2021

Times interest earned k 63.95 2,397.42

Capital Structure and solvency, the ratio is used to assess a company's capacity for long-term obligations and future revenue generation.

Debt-to-Equity ratio used in order to determine whether a firm finances its operations with debt rather than its own resources, to assess the
company's financial leverage. high percentage indicates that the company largely uses debt financing and is frequently linked to high
investment risk. For 2020 and 2021, Top Glove has a low debt-to-equity ratio (less than 1), indicating it is a low-risk investment.

The same is applicable for Top Glove's long-term debt to equity ratio, which was low, suggesting a lesser chance of bankruptcy for the
business.
Times Interest Earned is a measurement of a company's solvency that helps evaluate whether a company is earning enough money to pay its
debt and demonstrates that the company can earn multiple times as much as its annual debt obligation. Times Interest Earned can be found on
a company's income statement. In comparison to 2020, Top Glove reported much higher times of interest earned in 2021.

3.2 ROI, OPERATING PERFORMANCE AND ASSET UTILISATION

3.2.1 Return On Investment

2020 2021

Return on assets v 19.25 64.35

2020 2021

Return on common equity 41% 116.68

3.2.2 Operating Performance

2020 2021

Gross Profit Margin 39.38% 67.86%

 2020 2021

Operating profit Margin (pretax) 29.92% 61.34%

2020 2021

Net profit margin 24.71% 47.82%

3.2.3 Asset Utilization

2020 2021

Cash turnover 10.53 15.68

2020 2021

Accounts receivable turnover 8.87 23.97

2020 2021

Inventory turnover 7.55 6.28

2020 2021

Working capital turnover 6.17 7.61

 2020 2021

PPE turnover 2.63 4.7

2020 2021

Total asset turnover 1.00 1.77

The cash turnover ratio, an efficiency ratio, measures how frequently cash is transferred within a certain accounting period. Companies without
credit sales benefit most from using the cash turnover ratio. Top Glove reported a higher cash turnover ratio for the year 2021 compared to the
year 2020, which denotes a more frequent frequency of replenishing cash through revenue.

The average number of times a company collects its accounts receivable balance is measured by the accounts receivable turnover ratio. It is a
measurement of how well a business manages its line of credit process and collects unpaid bills from customers. A low ratio might be the result
of ineffective collection practises, insufficient credit policies, or customers who are not financially viable or creditworthy. Conversely, a high ratio
might indicate that corporate collection practises are effective with quality customers who pay their debts quickly.

By dividing the average inventory value throughout the time period by the cost of products sold, inventory turnover calculates how effectively a
business utilises its inventory. Businesses can improve their decisions on pricing, manufacturing, marketing, and purchasing by using the
inventory turnover ratio. It is one of the efficiency ratios that assesses how well a business utilises its resources.

Working capital turnover is a ratio that assesses how well a company uses its working capital to promote sales and growth. A high turnover
ratio indicates that management uses a company's short-term assets and liabilities to drive sales very efficiently. A low ratio, on the other hand,
may suggest that a company is investing in too many accounts receivable and inventory to sustain its sales, which may result in an excess of
bad debts or obsolete inventory.

PPE turnover ratio depends on all three assets; property, plant, and equipment It measures your ability to generate money from fixed assets
such as buildings, cars, and machinery. The greater our PPE turnover, the more efficient our capital investments.
Total asset turnover measures how well a corporation uses its assets to produce income. Top Glove generates more revenue from its assets in
2021 than it did in 2020.
3.3 MARKET MEASURE

2020 2021

Price-to-earnings 2.03 4.09

2020 2021

Earnings yield 13.27 % 26.71 %

2020 2021

Dividend Yield 49.60% 70.57%

2020 2021

Dividend payout rate 13.27% 26.71%

2020 2021

Price-to-book 0.28 0.88

The price-to-earnings ratio is one of the most generally used methods for determining a stock's relative valuation among investors and
analysts. The P/E ratio can be used to identify whether a stock is overpriced or under-priced. A high ratio may indicate that a company's stock
is overvalued or that investors anticipate rapid growth in the future.

Earnings yield indicates a company's earnings per share as a percentage. Many investment managers use earnings yield to determine optimal
asset allocations, while investors use earnings yield to judge which assets appear under-priced or overpriced.
Dividend yield is a financial measure that shows the return on an investment based purely on dividend payments.

The dividend payout ratio compares the amount of dividends given to shareholders to the total amount of net income generated by the
company. A high yield indicates that the company is reinvesting less money back into its operations, whereas a low yield can make a stock
appear less competitive in comparison to its industry.

The price-to-book ratio is a financial measure used to determine if a company's current market value is undervalued or overvalued based on its
book value. A price-to-book ratio greater than one could indicate that the equities are selling at a premium.