This article first appeared in The Edge Malaysia Weekly on October 23, 2023 - October 29, 2023

COME Oct 25, Careplus Group Bhd will explain to shareholders at an extraordinary general meeting its reasons for diversifying into the electric vehicle (EV) industry — a move that some say is odd given how remote Careplus’ core business is from EVs, and the glove maker’s lack of familiarity with the industry.

In a virtual interview with The Edge, Careplus executive director and group CEO Lim Kwee Shyan explains that plans for the group’s foray into EV came about after exploring with several investors the best use of land and properties acquired by the company during the pandemic.

“We ultimately decided to go with Go Automobile Manufacturing Sdn Bhd (GoAuto), whose management convinced us that our two assets in Seremban, the Chembong land and Careplus Mall in Oakland Industrial Park, are suitable for venturing into EV and renewable energy (RE),” Lim says.

Careplus in April sealed a collaboration and option agreement with a private individual named Woon Howl Chuen to enter the RE and energy-efficiency management market.

Lim is aware that Careplus’ foray may be met with scepticism,  mainly over how it will fund its diversification into an industry far removed from glove manufacturing, and the expertise of its new partners.

Whether the concerns of minority shareholders or investors will be allayed, Lim assures that after visiting GoAuto’s plant in Gurun, Kedah, and evaluating its history with Perusahaan Otomobil Kedua Sdn Bhd (Perodua) and the Naza Group of Companies, Careplus came away confident that the automotive player had the “necessary expertise to complement Careplus’ expertise in manufacturing” (gloves, though it may be).

“We are manufacturers, too, although there may be missing links in our experience now going into the automotive industry. I am sure we can learn fast. After many rounds of discussion, we came away very comfortable in the GoAuto management team and believe they can take us forward in this new business,” says Lim.

He says the group had continuously sought opportunities to diversify into other businesses, given the ongoing challenges and stiff competition in the glove industry. “The EV business is huge, but there are ways to go into it. You can put billions in, but if you don’t have that you can start smaller,” he says.

Lim believes that once its EV business takes off, the segments can contribute up to 25% of group revenue in the next three to five years, while the remaining 75% will come from gloves.

He believes that while gloves will remain the group’s core business, its manufacturing know-how will give it an advantage where automotive assembly is concerned.

In September, Careplus announced it had sealed two joint venture deals with Go Auto Group Sdn Bhd. One was to set up a new energy vehicle manufacturing hub on the former’s 73.34-acre plot in Chembong, Negeri Sembilan, and the other for an EV distributorship.

Go Auto is partly owned by Datuk Sheikh Mohamad Azli Sheikh Mohamad Nasimuddin Kamal, son of the late Naza Group founder Tan Sri S M Nasimuddin Kamal.

Careplus had signed a joint venture and shareholders’ agreement with Go Auto to set up Nexv Manufacturing Sdn Bhd (NMSB), to undertake the manufacturing hub project, and Intro Synergy Sdn Bhd (ISSB), to manage the EV (exclusive) distributorship of the “Neta” brand — a brand of passenger cars from Zhejiang, China. Careplus will hold a 51% stake in NMSB and 30% in ISSB, while Go Auto will hold the remaining equity interest in the companies.

Under the dealership agreements with ISSB, the glove maker has the rights to import Neta cars for distribution for the whole of Malaysia. Careplus also has the rights to control Negeri Sembilan dealers under NexV Synergy Sdn Bhd (NSSB),  in which Careplus owns 70%.

Careplus will fully manage the EV dealership business and operations of the company with full financial control, while NSSB will rent a single-storey retail complex at Careplus Mall as its showroom. Careplus Mall Seremban (CPP Mall, formerly known as Makro or Rapid Mall) will operate the EV dealership.

Careplus plans to develop CPP Mall into an auto city, in which “anything related to auto or new energy” will be made part of it.

“The CPP Mall will house our Neta showroom and high-speed charging stations for EVs...We have submitted our plans for approval and hope to begin construction soon,” Lim says.

“Hopefully, we can start assembling vehicles by the end of 2024. We will begin by assembling up to 10,000 Neta cars as the capacity of the facility stands at 30,000 units a year. There are other brands that are interested in joining us as they need a facility for completely knocked-down manufacturing. Our aim is to manufacture up to 30,000 units before going to the second and third phases,” Lim says, adding the capital expenditure (capex) for the two buildings will total about RM230 million.

Careplus expects the first RM60 million to RM70 million to be funded internally, and the balance from borrowings. The group had cash and cash equivalents of RM88.6 million as at June 30, 2023.

Careplus expanded its glove production capacity from 4.1 billion pieces of gloves per annum in FY2019 to 7.2 billion pieces in FY2021 due to upsurge in demand during pandemic, and further to 14 billion currently. But the group is only producing 5.32 billion pieces per annum — or 38% of its total capacity. The target is to hit 60% by 2024 and 80% by 2025, in anticipation of a recovery glove demand.

In January, Careplus had informed Bursa of plans to place out up to 114.6 million new shares, or 20% of its enlarged issued share capital, to raise as much as RM49.8 million before the year end, mainly for capex and working capital for the glove production lines.

Lim says the group will hold back on the private placement for now while waiting for the share price to improve. “The group may do a private placement for gloves again if our share price touches 40 sen apiece. But, if by January 2024 there are still no takers at the right price, we will let it lapse.”

Prior to the pandemic, the group slipped into the red with a net loss of RM7.8 million for the financial year ended Dec 31, 2019 (FY2019). But it raked in net profit of RM122 million in FY2020 and RM220.9 million in FY2021, and paid out dividends per share of five sen and four sen respectively for the two years.

Following a change in its financial year end from Dec 31, 2022, to June 30, 2023, Careplus posted a loss after tax of RM82.79 million for the three months ended June 30, 2023, against revenue of RM12.16 million. Loss after tax for the 18 months ended June 30, 2023, amounted to RM220.7 million on the back of RM307.4 million in revenue.

The losses were mainly because of a one-off impairment for machinery,  the cancellation of five uninstalled production lines, and high production overheads. “That led to losses as our average selling prices were lower than cost. We underestimated the impact of that on our business. We faced a huge loss in inventory cost as we prepared our materials during the pandemic — but glove prices fell drastically. We had no choice but to sell our stocks at very low prices. That contributed to  high overall losses in those 18 months,” Lim says.

Shares of the glove maker closed at 26 sen last Thursday after falling 47% from 49 sen in January, valuing the company at RM155.02 million. 

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