Industry Overview

8. INDUSTRY OVERVIEW 8. INDUSTRY OVERVIEW infobusiness
22 FEB 2017 The Board of Directors Eversafe Rubber Berhad Unit 30-01, Level 30, Tower A Vertical Business Suite Avenue 3, Bangsar South No.8,Jalan Kerinchi 59200 Kuala Lumpur Wilayah Persekutuan Malaysia Dear Sirs, EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (“EXECUTIVE SUMMARY”) FOR EVERSAFE RUBBER BERHAD (“COMPANY”) This Executive Summary has been prepared for inclusion in the Prospectus pursuant to the initial public offering and the listing of the Company on the ACE Market of Bursa Malaysia Securities Berhad. This research is undertaken with the purpose of providing a Strategic and Competitive Analysis of The Rubber Compounding and Tyre Retreading Industries in Malaysia. The research methodology includes both primary research, involving in-depth interviews with pertinent companies, as well as secondary research such as reviewing press articles, periodicals, government literatures, in-house databases, Internet research and online databases. The report contains information supplied by and analysis based on public and private sources. To the extent such sources have been cited herein, we hereby conftrm that we are allowed to make reference to such sources. Although we believe that the sources of such information are appropriate sources for such information and have taken reasonable care in extracting and reproducing such information, we have not verifted the data for accuracy or completeness, and make no representation with respect to information from any source external to us. Infobusiness Research & Consulting Sdn Bhd (“Infobusiness Research”) is a company that has been providing market research since 2002. It has prepared this Executive Summary in an independent and objective manner and has taken all reasonable consideration and care to ensure the accuracy and completeness of the Executive Summary. In addition, Infobusiness Research acknowledges that if there are signiftcant changes affecting the contents of the Executive Summary after the issuance of the Prospectus and before the issuance of securities, then Infobusiness Research has an on-going obligation to either cause the Executive Summary to be updated for the changes and, where applicable, cause the Company to issue a Supplementary Prospectus, or withdraw our consent to the inclusion of the Executive Summary in the Prospectus. The Executive Summary is highlighted in the following sections. for and on behalf of I[USINESS RESEARCH & CONSULTING SDN BHD MMkLef Director infobusiness research 107 8. INDUSTRY OVERVIEW (cont’d) infobusiness EXECUTIVE SUMMARY This executive summary has been prepared to provide an overview of the rubber compounding and tyre retreading industries in Malaysia. Rubber compounding involves the blending of a combination of raw materials so as to meet a given set of performance requirements. The masterbatch (z”ntermediate raw materials) used in tyre retreading materials; rubber compounds (intermediate raw materials) used in tyre retreading materials; and camelbacks, cushion gums, orbitreads, pre-cured tread liners, repair ropes and sidewall veneers (final products) are all collectively known as tyre retreading materials. All tyre retreading materials contain rubber compounds as their core constituents. 1.0 General Economic Overview The Global Economy Global growth is expected to expand 3.4% in 2017, mainly attributed to improvements in the US as well as stronger performances in the emerging market and developing economies. The US is anticipated to post a higher growth of 2.2% supported by stronger business investments and a strengthening housing market. Meanwhile, the euro area is expected to register a moderate growth of 1.5%, mainly due to the Brexit uncertainties that may continue to affect business and consumer confidence. Japan’s economy is anticipated to expand by 0.6% due to the implementation of fiscal and monetary measures. The PRC is anticipated to register a growth of 6.2%, driven by sustained domestic consumption and continued growth in the services sector, following the government’s rebalancing initiatives. Notwithstanding improvement in global growth, downside risks remain. The possibility of a sharper slowdown in the PRC may affect countries with closer financial, trade and investment links. The Brexit outcomes could be more severe than expected, especially in the euro area, as well as possible spillover effects on the global economy. In addition, other downside risks include volatility in the global financial markets and capital flows, continued low commodity prices, subdued global trade, currency pressures, prolonged low inflation, as well as escalating geopolitical tensions. Infobusiness Research & Consulting Sdn Bhd © 2017  1  infobusiness research  108
8. INDUSTRY OVERVIEW (cont’d) infobusiness

Notes: *= Indicates member countries ifthe euro area (Austria, Belgium, Cyprus, Estonia, Finland, France, Gennany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovak Republic, Slovenia and Spain). e =estimate f= Jorecast Source: Ministry o[Finance and Bank Negara Malaysia The Malaysian Economy The Malaysian economy is anticipated to expand between 4.0% and 5.0% in 2017. Value added in the Selvl.CeS sector is expected to increase by 5.7% in 2017, driven by expansion across all subsectors. The wholesale and retail trade, as well as food and beverages and accommodation subsectors are expected to grow 6.7% and 6.5%, respectively, supported by strong domestic consumption and tourism-related activities. The information and communication subsector is anticipated to expand by 9.6%, driven by growing adoption of digital services and devices by small and medium enterprises as well as households. Meanwhile, the value-added of real estate and business services subsector is expected to increase by 6.5% in view of increased demand for professional services. The transport and storage subsector is projected to expand further by 5.8%, largely driven by higher passenger volume following the commencement of mass rapid transit services. The manufacturing sector is anticipated to grow 4.1% in 2017. Growth in export-oriented industries is anticipated to be supported by sustained demand for electrical and electronics goods despite lower production of petroleum-related products. Meanwhile, growth in the consumer and construction-related industries is expected to continue to be supported by favourable domestic demand. Infobusiness Research & Consulting Sdn Bhd © 2017  2  infabusiness research  109
III Company No. 1133877-V I 8. INDUSTRY OVERVIEW (cani’d) infobusiness
Growth in the agriculture sector is envisaged to turnaround to 1.5% in 2017. The projection is on account of improvements in the output of oil palm and natural rubber, as well as a strong growth in the food commodity subsector. Production of crude palm oil is envisaged to rebound following better yields and expansion in matured areas. Similarly, the output of natural rubber is expected to expand. The output of food commodities is projected to grow further, driven by higher demand from industries and households. The mining and quarrying sector is expected to expand by 1.4% in 2017 attributed to higher output of natural gas. However, the production of crude oil (including condensates) is expected to decline due to the increasing number of maturing oil fields. Crude oil price is expected to remain low in 2017, amid a global crude oil glut. The construction sector is projected to grow by 8.3%, mainly supported by the commencement of large infrastructure projects. The residential subsector is projected to expand driven by affordable housing programmes. Meanwhile, the non-residential subsector is expected to benefit from mixed commercial developments. Table 2: Annual Change in Real GDP by Sector at Constant 2010 Prices, 2013­201t
4.0~4.5 4.0~5.0GDP 4.7 6.0 5.0 Agriculture 1.9 2.1 1.0 1.5-3.3 I Manufacturing I Mining and quarrying Construction Services 3.4 1.2 10.8 6.0 6.2 3.3 11.8 6.5 4.9 4.7 8.2 5.1 4.0 4.1 1.1 1.4 8.38.7 5.6 5.7 Notes: e = estimate f= forecast Source: Ministry ifFinance and Bank Negara Malcrysia 3Infobusiness Research & Consulting Sdn Bhd © 2017

 

infobusiness research 110 ,—~~-~—-­I Company No. 1133877-V 8. INDUSTRY OVERVIEW (cont’d) infobusiness
2.0 Introduction to the Rubber Products Industry There are two (2) main types of rubber, as follows: • natural rubber which is made from latex sourced from the rubber tree; and
• synthetic rubber which is derived from petrochemical feedstock.

In turn, natural rubber products can be categorised into dry rubber and latex rubber. Dry rubber refers to technically specified rubber or block rubber produced from cup lumps and/or unsmoked rubber sheets. A cup lump is produced when field latex is allowed or made to coagulate in the cup from which it is collected. Technically specified rubber is a raw material used mainly in the manufacturing of tyres for automotive and airplanes. Latex rubber is derived from field latex which is tapped by farmers from rubber trees and collected. To prevent the field latex from coagulating during transportation to the processing facility, ammonia, among other chemicals, is added to the field latex by the collectors. At the processing facility, the mixture is centrifuged to separate impurities and to obtain a latex concentration containing approximately 60.0% dry rubber content. Ammonia is added again to the extract to prevent it from coagulating before it is packed and prepared for shipment or storage. Natural rubber has some inherent attributes such as low heat generation, which is suitable for use in the sidewalls of tyres. This excellent resistance to heating makes it better suited for high­performance tyres used in racing cars, trucks and buses, as well as aircraft. Other attributes include good anti-chunking (separation of tread rubber from the tyre casing in particles) and anti-tear properties. In contrast, synthetic rubber has poorer fatigue resistance compared to natural rubber. The properties of natural rubber such as its high resilience, low heat build-up and outstanding processability make it an ideal material for tyres. Processability includes the ease with which rubber can be mixed, shaped and vulcanised. Worldwide, approximately between 60% and 70% of natural rubber consumption is used in the manufacturing of tyres and inner tubes. Infobusiness Research & Consulting Sdn Bhd © 2017  4  infobusiness research  111

8. INDUSTRY OVERVIEW (cont’d) infobusiness
Synthetic rubber is made from the polymerisation of a variety of monomers in the petrochemicals industry. Physically, the polymerisation process converts the monomer, either a liquid or a gas, into a synthetic rubber, plastic or fibre, depending on the chemical nature of the monomer. The operations of the petrochemicals industry involve a huge network of linked and sequential processes. At the beginning of the petrochemical industry value chain, the feedstock comprises crude oil and/or natural gas. There are over 200 types of synthetic rubber, each having its own constituents and qualities. Due to the inherent performance deficiencies of natural rubber, a wide variety of synthetic rubber has been developed to overcome the former. Some of the principal performance deficiencies of natural rubber are as follows: • Poor resistance to oil; and
• Poor resistance to oxygen and ozone.

In addition, synthetic rubber has supplanted many of the applications of natural rubber since the properties of natural rubber cannot be modified. An example of this is the partial replacement of natural rubber by synthetic rubber in tyre treads since the latter offers lower rolling resistance, better abrasion resistance and better crack resistance. Tyre treads made of synthetic rubber may last longer than tyre treads made with natural rubber. The two (2) mall synthetic rubbers used in the rubber compounding industry for the tyre retreading market are polybutadiene rubber (“PBR”) and styrene butadiene rubber (“SBR”). The main application of PBR is in making tyres (approximately 70%). Other applications of PBR are in making conveyor belts, driving belts and industrial hoses. Approximately 70% of total SBR produced is used in the manufacturing of tyres and related products. It is widely used in car tyres, where it may be blended with natural rubber. Besides automotive tyres, SBR is also used in conveyor belts, industrial hoses, gaskets and sheeting. 5Infobusiness Research & Consulting Sdn Bhd © 2017 infabusiness research 112 8. INDUSTRY OVERVIEW (cont’d) infobusiness
Since synthetic rubber production is derived from petroleum, the price of synthetic rubber is determined largely by the global price of crude oil and natural gas. Fluctuating prices of petroleum have an effect on the prices of synthetic rubber in the market, as the prices are transmitted through the supply chain. The suppliers of synthetic rubber quote prices to customers, usually on each quarter, which in turn, is dependent on market conditions. These prices are not available to the public, as they are confidential and agreed upon between the suppliers and customers. The table below shows the attributes of synthetic rubber and natural rubber ill tyre manufacturing. Table 3: Attributes of Natural Rubber and Synthetic Rubber in Tyre Manufacturing
Good for anti-chunking (separation of  Poor oil resistance and its lack of  tread rubber from the tyre casing in  resistance to oxygen and ozone.  particles) and anti-tear properties for  tyres. This is particularly important in the  truck and off-the-road tyre segments.  Low heat generation, which is suitable  Natural rubber for use in the sidewalls of tyres. This  excellent resistance to heating makes it  better suited for high-performance tyres  used in racing cars, trucks and buses, as  well as aircraft.  Long fatigue life and high strength even  without reinforcing fillers.  Have similar chemical and physical  Very weak relative to natural rubber,  properties to natural rubber but with  unless reinforcing fillers are  generally lower rolling resistance, better  incorporated.  abrasion resistance and better crack  Synthetic rubber resistance.  Very high impermeability to gases and  Has poorer fatigue resistance  hence, is used for the inner tubes of  compared to natural rubber.  tyres, and in vacuum and high pressure  applications.  Source: Infobusiness Research
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infobusiness research 113 8. INDUSTRY OVERVIEW (cont’d) infobusiness 3.0 Segmentation of the Rubber Products Industry The rubber products industry in Malaysia utilises processes that convert natural rubber and synthetic rubber into fmished products for intermediate and final consumption. It can be categorised into tyres and inner tubes, latex products, industrial rubber products, general rubber products and rubber footwear, as illustrated in the figure below. Figure 1: Segmentation of the Rubber Products Industry in Malaysia
Note: Eversqft Rubber Group is involved in the manufacturing 0/retreaded ryres, as indicated 0J the dotted box.
Source: InfiJbusiness Research 4.0 Overview of the Rubber Compounding Industry Similar to making a cake, rubber compounding is the process of adding additives, fillers, polymers, or reinforcements to natural rubber and/or synthetic rubber. It is used to acquire properties by varying the ratios of ingredients and compensating for the chemical reactions, so as to meet a given set of performance requirements. A rubber compound could be a combination of between three (3) and 15 different ingredients, giving rise to hundreds of different compositions. Due to all these combinations, not all rubber compounds are the same. The specific ingredients chosen for a rubber compound will be driven by the ultimate physical properties of the finished product, the processing characteristics required by the manufacturing process, and the acceptable economics for the fmished product. That is why most rubber compounders consider their rubber formulations proprietary. Infobusiness Research & Consulting Sdn Bhd © 2017  7  infobusiness research  114
8. INDUSTRY OVERVIEW (cont’d) infobusiness
The main ingredients used in rubber compounding are as follows: • Natural rubber and/or synthetic rubber are the most important ingredient in a rubber compound, providing the bases for chemical, physical and moulding properties;
• Carbon black is one of the most common fillers used to provide the physical strength and black colour used in rubber compounds used in tyres. As there are various particle sizes, changing the particle size can change the physical properties of rubber compounds;
• White clays and mineral fillers are used for coloured compounds. These fillers are typically less reinforcing than carbon black. The blending of these fillers with carbon black assists to reduce cost of the overall rubber compounds;
• Antioxidants assist to protect the rubber compound from high temperature while in use and while the rubber compound is being mixed. These ingredients can absorb free radicals which may break the rubber bonds as well as reduce the service life of the rubber compounds;
• Antiozonants such as wax are used to coat the surface after moulding to protect the rubber from ozone attacks; and
• Rubber processing oils are used during the mixing of rubber compounds. They also assist to reduce the viscosity of the overall rubber compound, which facilitate the moulding process. Adding more rubber processing oils can also lower the hardness of the rubber compounds.

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8. INDUSTRY OVERVIEW (cont’d) infobusiness Rubber compounds are used in a wide range of applications and their main applications are illustrated in the diagram below. Figure 2: Main Applications of Rubber Compounds
Notes: Both natHral rubber and !Jmthetic rHbber are Hsed in rHbber compoHnding. Eversqfe RJlbber GroHp is involved in the rHbber compoHnding indHstryfor the tyre retreading market, as indicated fry the dotted box. SOHrce: 1I1:fObHsiness Research Through varylllg types and percentage of rubber compounds, different tyres for different purposes are produced. Further adding to the complexity, separate rubber compounds are used for different parts of the tyres. Within a tyre, different rubber compounds are used for different functions as follows: • The external tread rubber compound provides traction and mileage; and
• The rubber compound situated inside the tyres adheres to the belt system and helps provides stability to the tread area.

The right rubber compounds are critical in the manufacturing of retreaded tyres, as they can greatly assist to reduce rolling resistance and enhance durability, thereby potentially increasing the number of times a tyre can be retreaded. Infobusiness Research & Consulting Sdn Bhd © 2017  9  infobusiness research  116
8. INDUSTRY OVERVIEW (cont’d) infobusiness
The table below shows the proportions of the various ingredients used in rubber compounding for tyres, in addition to steel. It can be seen that natural rubber is used more in commercial vehicle tyres than passenger car tyres. Conversely, synthetic rubber is utilised more in passenger car tyres than commercial vehicle tyres.
Natural rubber Synthetic rubber Carbon black Steel Others (antioxidants, antizonants, rubber processing oils, etc.) Total 14% 27% 27% 14% 28% 28% 14%-15% 14%-15% 16%-17% 16%-17% ~ 100% ~ 100% Note: Althoughsteelisnotusedinrubbercompounding,itisshown toillustrateitsrelativeimportanceintyremanufacturing.
Source: Infobusiness Research
Despite the competition from synthetic rubber, natural rubber continues to hold an important place in tyre consumption. In particular, its superior tear strength and excellent resistance to heat build-up, makes it better suited for high-performance tyres used on racing cars, trucks and buses, as well as aircraft. Generally, a blend of natural rubber and synthetic rubber is used in tyre manufacturing. In large truck and off-the-road tyres, which require low heat generation, more natural rubber is used. Generally, the larger the tyre, the greater the percentage of natural rubber used. Infobusiness Research & Consulting Sdn Bhd © 2017  10  infobusiness research  117

 

8. INDUSTRY OVERVIEW (cont’d) infobusiness
As natural rubber has a longer fatigue life, it is used in combination with SBR and PBR by tyre manufacturers and tyre retreaders to provide the optimum desired properties in tyres. SBR has good traction or grip, as well as good aging stability when protected by additives. PBR exhibits high resilience (the ability to recover size and shape after stress) with low heat build-up and abrasion resistance, making it well suited for tyres. The consumption of rubber compounds used in tyre retreading increased steadily from 15,530 metric tonnes in Malaysia in 2011 to 18,374 metric tonnes in 2015, yielding a CAGR of 4.3% during the corresponding period. The steady increase in the number of commercial vehicles on the road had contributed towards the consumption of rubber compounds used in tyre retreading in Malaysia. Figure 3: Consumption of Rubber Compounds used in Tyre Retreading in Malaysia (Metric Tonnes) Metric tonnes 19,000 18,37418,500 18,000 17,500 17,000 16,500 16,000 15,500 15,000 14,500 14,000
2012 2013 2014 2015
Source: lnfobusiness Research 11Infobusiness Research & Consulting Sdn Bhd © 2017

infobusiness research 118 8. INDUSTRY OVERVIEW (cont’d) infobusiness 5.0 Overview of the Tyre Retreading Industry The interconnected activities through which an indusu:y delivers products and/or services can be viewed as a value chain. To understand the tyre retreading industry better, it is necessaty to look at its value chain, as illustrated below. Figure 4: Value Chain of the Tyre Retreading Industry
Camelbacks Cushion gums Orbitreads Pre-cured tread liners Repair ropes Sidewall veneers Notes: Although both the masterbatch used in tyre retreading and rubber compounds used in tyre retreading are intermediate raw materials, thry are also classified as tyre retreading materials. Eversaft Rubber Group is involved in the activities as indicated ry the dotted boxes.
Source: Infobusiness Research • Natural rubber and/or synthetic rubber: they are derived from rubber trees and petrochemicals, respectively.
• Masterbatch used in tyre retreading materials: it is a form of raw rubber compound used in the manufacturing of tyre retreading materials. It is an essential raw material which is further compounded with chemicals, such as sulphur, accelerators and/or other additives, to form the desired rubber compounds. The usage of masterbatch in rubber compounding can lead to easier processing and better product performance, ego abrasion resistance in a tyre tread.
• Rubber compounds used in tyre retreading materials: they are a combination of raw materials blended to achieve qualities that are appropriate to the performance requirements of each type of tyres.

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8. INDUSTRY OVERVIEW (cant’d) infobusiness
• The final products of tyre retreading materials compnse came1backs, cushion gums, orbitreads, pre-cured tread liners, repair ropes and sidewall veneers.
• Retreaded tyres: they are tyres where a new tread 1S bonded to a used tyre casmg, effectively restoring the tyre to a new condition.

A tyre compnses a tyre casing and a tread. The tyre casing is designed for a specific load capacity and performance level, as well as to endure the stress exerted upon it. However, a tyre casing is not only the foundation of a tyre, but also the foundation of successful tyre retreading. Remanufacturing, including retreading tyres, is an industrial process that restores end-of-life goods to their original working condition. Retreads for larger tyres such as those used in commercial vehicles are more popular, as the tyre casing is more expensive and it makes more commercial sense to recycle a larger tyre than to scrap it. Virtually all of the world’s airlines and off-the-road heavy duty trucks such as those used in the mining industry, use retreaded tyres for economic reasons. Retreading designates the technical process allowing the life extension of a used tyre. It basically consists of stripping away the remaining tread and sidewall of the used tyre and their replacements. New rubber is then moulded to the used tyre casing. The retreaded tyre is brought back into the same service conditions without sacrificing tyre road performances. This process may be repeated as long as the tyre casing integrity is intact. The production of retreaded tyres is mainly concentrated on commercial, off-the road and aircraft tyres. Today’s technology has given tyre retreading companies the ability to manufacture retreaded tyres equivalent to new tyres. High quality tyre casings for commercial vehicles, combined with proper maintenance, are able to retain their properties well and can be retreaded several times. Long haul commercial tyres are retreaded on an average of two (2) times. Commercial airlines worldwide also use retreaded tyres. In the US alone, nearly 80% of all aircraft tyres are retreaded tyres. This illustrates the reliability and safety of retreaded tyres. Infobusiness Research & Consulting Sdn Bhd © 2017  13  infobusiness research  120

8. INDUSTRY OVERVIEW (cont’d) infobusiness
The quality of a retreaded tyre depends on the following conditions: • The condition of the tyre casing;
• The skills of the workforce;
• The level of retreading technology utilised;
• The rubber compounds used, and
• The raw materials such as additives used.

The benefits of retreaded tyres are both economic and environmentally-related, as follows: • Reduce the consumption of natural rubber and synthetic rubber, as tyre casings from old tyres are reused;
• The cost of a retreaded tyre is up to 50% less than the cost of comparable quality new tyres;
• Assist fleet operators to optimise their overall operation costs by providing them lower tyre cost per kilometre. The business of fleet operators may not be viable without substantially using retreaded tyres. Fleet operators such as logistics companies and public bus companies operate their vehicles on the road for relatively long periods of time, thus reducing the lifespan of the vehicles’ tyres through wear and tear, as compared to passenger vehicles. The cost of a retreaded tyre is up to 50% less than the cost of comparable quality new tyres, as the tyre casings are reused. Particularly during periods of economic slowdowns, fleet operators leverage on retreaded tyres to lower operating costs;
• The manufacture of a new medium-sized commercial tyre from synthetic rubber requires approximately 22 gallons of crude oil, but it takes only seven (7) gallons of crude oil to retread, ultimately leading to a lower carbon footprint and conserving valuable finite petroleum resources. Most of the crude oil is used in the tyre casing, which in turn, is reused during the retreading process; and
• It enables the extension of the useful lives of millions of tyres that would otherwise end up in tyre piles or in valuable landfill space.

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8. INDUSTRY OVERVIEW (cont’d) infobusiness
The ex-factory sales of retreaded tyres in Malaysia declined from RM261.2 million in 2011 to RM198.0 million in 2015, generating a negative CAGR of 6.7%. The decline in the ex-factory sales of retreaded tyres in Malaysia was principally due to the decrease in the prices of natural rubber during the corresponding period of time (please see figure 6). Natural rubber is the principal raw material used in the manufacturing of rubber compounds that are utilised in retreaded tyres in Malaysia. Due to the efficacy of the market, reductions in prices of natural rubber also translated into lower prices of retreaded tyres. Figure 5: Ex-Factory Sales of Retreaded Tyres in Malaysia (RM ‘000) RM’OOO 300,000
2011 2012 2013 2014 2015 Source: Department ofStatistics 6.0 Government Legislations INDUSTRIAL COORDINATION ACT 1975 The Industrial Coordination Act 1975 was introduced with the aim to maintain an orderly development and growth in the country’s manufacturing sector. It requires manufacturing companies with shareholders’ funds of RM2.5 million and above, or engaging 75 or more full­time paid employees, to apply for a manufacturing licence for approval by the Ministry of International Trade and Industiy. 15Infobusiness Research & Consulting Sdn Bhd © 2017

infobusiness research 122 8. INDUSTRY OVERVIEW (cont’d) infobusiness
Malaysian Rubber Board (Licensing) Regulations 2014 Under the Malaysian Rubber Board (Licensing and Permit) Regulations 2014, any person who wishes to buy and store rubber for the manufacture of rubber products needs to hold a valid licence from the Malaysian Rubber Board. This also encompasses the processing of rubber, which refers to any activity which changes the physical and chemical properties of rubber, such as rubber compounding and vulcanisation. Factories and Machinery Act 1967 The objective of the Factories and Machinery Act 1967 is to provide for the control of factories on matters relating to the health, safety and welfare of persons, and the registration and inspection of machinery. All factories and general machinery must be registered with the Department of Occupational Safety and Health before they can be installed and operated in Malaysia. Some high risk machinery such as the autoclave which is a form of steam boiler used for vulcanising, must be certified and inspected. Eversafe Rubber Group has such machinery and it has obtained the certificates of fitness for them from the Department of Occupational Safety and Health. Occupational Safety and Health Act 1994 The Occupational Safety and Health Act 1994 provides the legislative framework to promote, stimulate and encourage high standards of welfare and a safe working culture among employees and employers, through self-regulation schemes designed to suit the particular industry or organisation. Under the Occupational Safety and Health Act 1994, employers must safeguard as far as is practicable, the health, safety and welfare of the people who work for them. This applies in particular to the provision and maintenance of a safe plant and system at work. Infobusiness Research & Consulting Sdn Bhd © 2017  16  infobusiness research  123
8. INDUSTRY OVERVIEW (cont’d) infobusiness
Department of Environment To promote environmentally sound and sustainable developments, the Malaysian Government (“Government”) has established the legal and institutional framework for environmental protection. In the rubber products industry, including rubber compounding activities, the primaq environmental concerns are fugitive emissions, solid wastes, waste water and hazardous wastes. The rubber compounding area, where chemicals are weighed and put into containers prior to mixing, can be a source of fugitive emissions and possibly spills and leaks. Waste water from cooling, heating and cleaning operations is an environmental concern in many facilities. To address the waste water issue, many facilities have implemented water reuse and recycling programs. Waste rubber from rubber compounding and tyre retreading activities can be classified into three (3) categories as follows: • uncured rubber waste;
• cured rubber waste; and • off-specification products.

 

Uncured rubber waste can be recycled in the factory. Meanwhile, cured rubber waste can either be recycled in-house or sold to other companies that use it to make products such as mud flaps and playground mats. Lastly, off-specification products can be sold to other companies that make products from shredded or scrap rubber or they can be disposed of. [The rest of this page is intentionally left blank] Infobusiness Research & Consulting Sdn Bhd © 2017  17  infobusiness research  124

8. INDUSTRY OVERVIEW (cont’d) infobusiness
7.0 Government Policies Economic Transformation Program (“ETP”) The rubber products industry is promoted under the ETP. Under the ETP, the rubber products industry (along with oil palm-based industty) has been identified as one (1) of the twelve national key economic areas (“NKEAs”). A NKEA is defined as a driver of economic activity that has the potential to directly and materially contribute a quantiftable amount of economic growth to the Malaysian economy. Key targets for the rubber industry under the ETP include ensuring availability of domestic supplies to develop higher-valued rubber products. The rubber products industry has a targeted growth rate of at least 6% per annum towards the year 2020. 8.0 Government Incentives There are many incentives provided to the manufacturing sector by the Government. Under Budget 2015, the Government is committed to provide incentives in the form of a capital allowance of 200% on automation expenditure on the first RM4 million expenditure incurred between the period 2015 and 2017, in the high labour-intensive industries such as rubber products, plastic products, wood-based, furniture and textiles. This is to encourage automation in those industries. Eversafe Rubber Group is not eligible for the incentives, as it is entitled to claim a special reinvestment allowance on qualifying capital expenditure incurred for three (3) years, between year of assessment 2016 and year of assessment 2018. 9.0 Standards To meet safety standards, tyre retreading should be carried out only by qualified companies, and tyres should be certified to guarantee safety and quality standards. It is important therefore that consumers purchase retreaded tyres from companies that follow the rules for retreading systems, and that they have their tyres certified. Retreaded tyres are considered safe for use in Malaysia as long as they have adhered to the strict standards as follows. However, compliance with a Malaysian standard does not of itself confers immunity from legal obligations. Infobusiness Research & Consulting Sdn Bhd © 2017  18  infobusiness research  125
8. INDUSTRY OVERVIEW (cont’d) infobusiness
• SIRIM MS 224:2005 SIRIM Berhad is a wholly-owned research and standards development company of the Government. This Malaysian Standard specifies the requirements for the retreading of pneumatic highway tyres, including passenger car tyres and tyres for multi-purpose passenger vehicles, trucks, buses, trailers and other commercial vehicles used on public roads. It covers requirements such as tyre casing inspections, the selection criteria for retreading, processing standards, performance tests, warranties, etc. The processing standards are essential for the proper manufacturing of the retreaded tyres and are those which shall be made applicable in every tyre retreading factory. Under MS 224:2005, the following must be permanently and legibly marked on the tyre sidewall or shoulder, in letters and numerical not less than four (4) millimetres high, and embossed on the tyre surface with the following information, among others: • The retreaded tyre manufacturer’s name and!or trademark;
• The tyre size designation;
• The marking “retread” is mandatory for all bead-to-bead retreaded tyres (tyre remanufacturing on a tyre casing with worn treads) and optional for other types of retreaded tyres;
• The week and year of the manufacture of retreaded tyres;
• The standard MS 224:2005.

To ensure that the consumer is aware that the retreaded tyres purchased complies with the requirements of MS 224:2005, all retreaded tyres shall carry a product warranty against defects in the workmanship and materials, as well as providing satisfactory services under normal operating conditions. Infobusiness Research & Consulting Sdn Bhd © 2017  19  infobusiness research  126

 

8. INDUSTRY OVERVIEW (cont’d) infobusiness
• UN/ECE Rl08 and UN/ECE Rl09 According to United Nations regulations No. 108 (uniform provisions concerning the approval for the manufacturing of retreaded pneumatic tyres for motor vehicles and their trailers) and No. 109 (uniform provisions concerning the approval for the manufacturing of retreaded pneumatic tyres for commercial vehicles and their trailers); passenger automobile tyres may be retreaded just once, while truck and aircraft tyres, thanks to their stronger structure, may be retreaded more often (in the case of truck tyres typically up to four (4) times, and for aircraft tyres easily up to 10 times), provided that quality standards are satisfied. In addition, the lifetime of an original tyre casing should be taken into account, and must not exceed seven (7) years. This will ensure that the retreaded tyres fulfill similar safety and quality control requirements as new tyres. 10.0 Demand And Supply Conditions (Rubber Compounds) 10.1 Demand Conditions Business Conditions In general, an increase in the number of commercial vehicles in use would generate an increase in demand for retreaded tyres, and ultimately, the tonnage of rubber compounds used in tyre retreading. The number of commercial vehicles in use is dependent on factors such as the level of commercial activities, level of industrialisation, population growth, etc. In addition, during periods of economic slowdowns, demand for rubber compounds used in retreaded tyres also increases in general, as fleet operators would prefer to use retreaded tyres. This has an impact on the consumption of rubber compounds used in retreaded tyres. An Active Tyre Retreading Industry in Malaysia The tyre retreading industry in Malaysia is an active one, due to demand for retreaded tyres from fleet operators who viewed their usage as an essential cost-cutting tool. The savings generated from fleet operators using retreaded tyres benefit everyone with lower costs. In addition, retreaded tyres provide massive environmental and energy-saving benefits. In turn, this generates demand for rubber compounds. Infobusiness Research & Consulting Sdn Bhd © 2017  20  infobusiness research  127
8. INDUSTRY OVERVIEW (cont’d) infobusiness
Consumption of Rubber Compounds used in Tyre Retreading in Selected Countries Based on the number of commercial vehicles on the road, the consumption of rubber compounds used in tyre retreading in selected countries is shown in the table below. The logistics industry, followed by public buses, are the main users of retreaded tyres, and hence, rubber compounds. The PRC was the biggest consumer of rubber compounds used in tyre retreading, with consumption rising from 245,760 metric tonnes in 2010 to 398,550 metric tonnes in 2014, representing a CAGR of 12.8%. The neighbouring countries such as Thailand and Indonesia recorded consumption of rubber compounds at CAGRs of 5.4% and 4.5%, respectively, between 2010 and 2014. Table 5: Consumption of Rubber Compounds used in Tyre

2010  245,760  1,935  87,750  104,070  97,860  2011  280,695  1,965  91,920  108,225  107,460  2012  327,660  2,010  97,125  112,650  115,575  2013  380,100  2,085  102,195  118,485  125,340  2014  398,550  2,055  108,360  124,170  135,405  CAGR  12.8%  1.5%  5.4%  4.5%  8.5%  ——–_.­.  Note:
Hong KongisaSpedalAdministrative Region underthe PRe. SOUTce: Infobusiness Research 55,815 59,235 62,670 65,505 67,725 5.0% 15,345 15,645 15,810 16,050 16,305 1.5% 255,210 252,645 250,575 248,745 247,800 -0.7% Retreading in 2,610  64,650  2,655  64,515  2,670  64,395  2,670  64,845  2,685  65,565  0.7%  0.4%
10.2 Supply Conditions Availability of labour The rubber compounding industry is fairly labour-intensive. In addition, it requires the expertise of skilled labour such as polymer chemists with a solid knowledge of rubber compounding formulation and processing knowhow. In particular, the proper blending of natural rubber and synthetic rubber, as each has different properties that affect the performance of the retreaded tyres. This is important during periods of rising natural rubber prices or rising synthetic rubber prices as they are substitutes for each other to a certain extent. Infobusiness Research & Consulting Sdn Bhd © 2017  21  intobusiness research  128

8. INDUSTRY OVERVIEW (cont’d) infobusiness
Supply of natural rubber and synthetic rubber Natural rubber and synthetic rubber are to some degree substitutes and complementary products. Choosing either natural rubber or synthetic rubber depends not only on cost but also on the properties and performance required for the end use as well as the manufacturer’s production technology. Over the long term, new types of synthetic rubber with new properties could be developed, replacing natural rubber. Increases in petroleum pnces are not always transferred to the feedstock used in the manufacturing of PBR and SBR in a one-to-one ratio, because there are many steps from the crude oil to the fInal product. In addition, an excess or shortage of capacity in the petrochemical industry may also influence prices. There is usually a time lag of approximately three (3) months before the effects are felt downstream. When prices of petroleum increase, retreading tyre manufacturers are compelled to substitute synthetic rubber with natural rubber. Subsequendy, when demand for natural rubber increases, its prices also increase, owing to the effIcacy of the global market place. Similar to the many other commodities in the global market, fluctuating prices of natural rubber are normal. On the other hand, prices of synthetic rubber are less volatile as they do not fluctuate on a daily basis. The consumption of synthetic rubber such as SBR and PBR is affected by the global economic conditions as well as the dynamics of the automotive market and improvements in road and highway infrastructure. Several new SBR plants have come onstream such as in India in recent years such that supply capacity exceeds demand at present. This has led to a depressed price for SBR and this is expected to continue over the next few years. Global SBR consumption is anticipated to come from rising demand in Asian countries such as the PRC and India, Central and Eastern Europe, as well as Central and South America. Similarly, several PBR plants have come onstream in the PRC, leading to an oversupplied market and prices being pressured. This is anticipated to continue over the next few years. The Asia PacifIc region is the leading region in terms of PBR consumption. Infobusiness Research & Consulting Sdn Bhd © 2017  22  infobusiness research  129

8. INDUSTRY OVERVIEW (cont’d) infobusiness
Natural rubber prices One (1) of the key inputs for the manufacturing of rubber compounds is natural rubber. Prices of natural rubber rose between 2009 and early 2011, due to severe drought in South East Asia (particularly Thailand) and increased demand from the PRC, the largest natural rubber consuming country in the world. However, demand nosedived in 2011, fuelled by the euro area sovereign debt crisis. One (1) of the different natural rubber grades sold in Malaysia, Standard Malaysian Rubber (“SMR”) 20, is used in rubber compounds for tyre retreading. The prices of SMR 20 experienced high volatility in the market between Januaty 2011 and January 2017, with prices decreasing by 39.4% between these two (2) periods (please refer to figure 6). Owing to the efficacy of the global market place, any volatility in the prices of natural rubber is quickly translated along the supply chain, affecting the cost of rubber compound manufacturing. Prices of natural rubber were on the uptrend since the last quarter of 2016, due principally to a recovery in petroleum prices and flooding in southern Thailand, which is a major natural rubber producing area. Increases in the prices of petroleum may also lead to a corresponding increase in the prices of synthetic rubber. Rubber product manufacturers are compelled to substitute natural rubber for synthetic rubber, thus pushing up prices of natural rubber. The market for natural rubber is uncertain as external factors continue to playa major role in determining prices. The market is anticipated to be affected by factors such as the global economic condition, developments in the Chinese economy, crude oil prices and currency movements, as well as the vagaries of the weather in the natural rubber producing countries. The global production of natural rubber is anticipated to exceed the global consumption over the next few years. Similar to many other commodities, the PRC is the big factor on the supply­demand situation in natural rubber. The natural rubber producers in South East Asian countries did a lot of planting in anticipation of the PRC’s economic growth, when a shortfall of the commodity was anticipated. The PRC had been consuming natural rubber to manufacture tyres for its booming automotive industry. However, the PRC’s economy has been slowing down from its double digit growth days. 23Infobusiness Research & Consulting Sdn Bhd © 2017

infobusiness research 130 8. INDUSTRY OVERVIEW (cont’d) infobusiness Global production of natural rubber is anticipated to increase as rubber trees planted between 2006 and 2008 mature. The impact of EI Nino occurring in 2016 will not be enough to counter the large and rising amount of surplus of natural rubber, although it may assist to slow down the declining price trend. Figure 6: Monthly Price for SMR 20 (Sen/Kilogram) sen/kilogram 1,800.00 1,600.00 1,400.00 1,200.00 1,000.00
800.00 600.00 400.00 200.00 0.00 N «i «i …………………
fr ~~ C/) >—, ~ Source: Malaysian Rubber Board
Supply of carbon black Most carbon black applications are used in rubber compounding. Carbon black can be manufactured into various grades and categorised based on its functionality in end applications. They are principally utilised as fillers to provide the physical strength and black colour used in rubber compounds. As a multi-component system, tyres require the application of differing grades of carbon black and quantities to suit the different tyre types and needs. Carbon black is derived from carbonaceous fuels such as petroleum (crude oil and natural gas) as well as coal. The global oversupply of petroleum and coal has dictated the production costs of carbon black. This is compounded by the economic slowdown in the emerging and commodity-exporting countries on the demand side. Ultimately this translates into lower costs in the supply chain of rubber compounding manufacturing. Infobusiness Research & Consulting Sdn Bhd © 2017  24  infobusiness research  131
8. INDUSTRY OVERVIEW (cant’d) infobusiness
11.0 Substitutes to rubber compounds There are no substitutes to rubber compounds as they are necessary for the formulations of downstream rubber products, such as retreaded tyres. Depending on the end usage, each variety of rubber compounds has unique customised mechanical and physical charactel’istics to match the specific application and technical requirements of each market. Different ingredients are mixed together with either natural rubber and/or synthetic rubber to produce rubber compounds with specific characteristics. 12.0 Industry Reliance on and Vulnerability to Imports (rubber compounds) The chief raw materials used in the manufacturing of rubber compounds are natural rubber and synthetic rubber. Malaysia is currendy the fourth largest producer of natural rubber in the world and its production of dry rubber is sufficient for the rubber compounding industry. Although synthetic rubber such as SBR is produced in Malaysia, it is also imported, along with PBR, from countries such as Japan, South Korea, the PRe, Thailand and Singapore. Nevertheless, the different types of synthetic rubber used in the rubber compounding industry are viewed as commodities and are easily available in the market. Synthetic rubber is produced in large volumes in petrochemical plants so as to achieve economies of scale. In addition, synthetic rubber is one of the main downstream materials derived from petroleum. 13.0 Demand And Supply Conditions (Tyre Retreading) 13.1 Demand Conditions Economic benefits Retreaded tyres are a sound economic choice for fleet companies, as their usage can lead to significant savings without compromising on safety or reliability. Retreaded tyres can be driven at the same legal speeds as comparable new tyres with no loss in safety, performance or comfort. Tyres represent one of the largest items in the operating budget for most fleet companies. As retreaded tyres provide comparable mileage as against new tyres, but at a lower cost per kilometre, such economic benefits associated with retreaded tyres are the principal driver behind their usage in the market. 25Infobusiness Research & Consulting Sdn Bhd © 2017

 

infobusiness research 132 8. INDUSTRY OVERVIEW (cont’d) infobusiness
Growing number of commercial vehicles in use in Malaysia The number of commercial vehicles in use in Malaysia increased from 1.1 million in 2011 to 1.3 million in 2015, generating a CAGR of 4.3% during the corresponding period. They form an expanding base of commercial vehicles in the country, which in turn, translates into higher demand for retreaded tyres in the market. This is also supported by an expanding infrastructure, ego the length of roads in Malaysia increased from 137,200 kilometres in 2010 to an estimated 230,300 kilometres in 2015, yielding a CAGR of 10.9% during the period. The logistics industry is the main user of commercial vehicles in Malaysia. Broadly, logistics refers to the act of managing the efficient and cost-effective transport and storage of goods (such as raw materials, intermediate products and fmished goods), from the point of origin to the point of consumption. The other main users of commercial vehicles in Malaysia are public buses. Transportation is a vital lifeline for both urban and rural communities in Malaysia. It ensures that people from all walks oflife are able to access and broaden their activities in pursuit of jobs, recreation and daily necessities. Under the Eleventh Malaysia Plan 2016-2020, the Government aims to continue to provide sufficient and affordable access to transportation to allow for a safe, efficient and fast flow of people within the country. Figure 7: Number of Commercial Vehicles in use in Malaysia Corrunercial vehicles in use 1,300,000  1,264,986  2011  2012  2013  2014  2015

S014rce: Ministry ofTransport 26Infobusmess Research & Consulting Sdn Bhd © 2017

infobusiness research 133 8. INDUSTRY OVERVIEW (cont’d) infobusiness
Environmental benefits Retreaded tyres provide an environmentally friendlier alternative as they assist to reduce the amount of tyre wastes, as the former are recycled. The curved shape of tyres, together with their impermeability, allows rain water to collect and creates an ideal habitat for rodents and mosquitoes, particularly in the tropical and subtropical regions. Prone to heat retention, tyres in stockpiles can also ignite, creating fIres that are diffIcult to extinguish and can burn for months, generating unhealthy smoke and toxic oils. They also help to save non-renewable natural resources in an energy scarce world, as they require signifIcantly less crude oil as compared to the manufacturing of new tyres. Government initiatives The Eleventh Malaysia Plan 2016-2020 promulgated in 2015 enVisages that commercial and industrial wastes generated in the country will be managed in a holistic manner, such that the amount of wastes and pollution is reduced through recycling and recovery rates. The reuse, reduction and recycling of wastes is a long term goal. Malaysia is undertaking sustainable consumption and production as one of the approaches to achieve green growth. It assists to promote economic growth without compromising the environment or jeopardising the needs of future generations. The usage of retreaded tyres is able to lead to a lower carbon footprint. 13.2 Supply Conditions Availability of tyre casings The number of commercial vehicles in use in Malaysia increased from 1.1 million in 2011 to 1.3 million in 2015, yielding a CAGR of 4.3% during the corresponding period (please refer to fIgure 7). They provide a constant source of tyre casings to tyre retreading companies when their tyres are worn out. A used tyre casing has worn treads but an intact core (the steel and polyester belts, sidewall and steel rims). However, there is no guarantee that a substantial amount of tyre casings in a reasonably good condition can be collected back. The main challenge for tyre retreaders which plan to sustain and/or expand their operations is to obtain a consistent flow of tyre casings. The tyre casing condition is critical for tyre retreading. Tyre retreading cannot take place if the tyre casing is not built to withstand another life cycle. Tyre retreadability begins and ends with the quality of the tyre casing. Infobusiness Research & Consulting Sdn Bhd © 2017  27  infobusiness research  134
8. INDUSTRY OVERVIEW (cont’d) infobusiness
Availability of labour Tyre retreading is comparatively more labour-intensive than the rubber compounding industry. In addition, more skilled labour is needed to manufacture the retreaded tyres as the rubber compounding industry can be more easily automated. During tyre retreading, the retreading technician must fIrst place the used tyre casing (which has passed the initial inspection process) in a buffIng machine to remove old worn tread and sidewall rubber on the tyre casing; followed by further visual inspection and manual removal of materials. Next, the technician must inspect the tyre casing for any damages/holes. Lasdy, the technician applies gum solutions onto the tyre casing for adhesion and fills the holes in the tyre casing with rubber compounds. In the case of hot cure tyre retreading, it requires more skilful technicians and more sophisticated equipment such as a range of moulds capable of withstanding high temperatures, as compared to cold cure tyre retreading. 14.0 Substitutes to retreaded tyres The substitutes to retreaded tyres are new tyres. However, new tyres are more expensive and their usage will contribute to increased cost of doing business in the supply chain of many industries, as commercial vehicles are needed for the transportation of both raw materials and the fmal products. The cost of a retreaded tyre is up to 50% less than the cost of comparable quality new tyres, as the tyre casings are reused. 15.0 Indusuy Reliance on and Vulnerability to Imports (tyre retreading) The tyre retreading industry in Malaysia is not reliant on and vulnerable to imports of rubber compounds, as the domestic rubber compounding industry is producing sufficient raw materials for the former. In particular, Malaysia is currendy the world’s fourth largest producer of natural rubber after Thailand, Indonesia and Vietnam. Infobusiness Research & Consulting Sdn Bhd © 2017  28  infobusiness research  135
8. INDUSTRY OVERVIEW (cont’d) infobusiness
Malaysia is not reliant on and vulnerable to imports of retreaded tyres, as far as commercial vehicles such as lorries and buses are concerned, as the domestic tyre retreading industry has sufficient capacity to cater to them. Although Malaysia does import retreaded tyres, the majority of the retreaded tyres are for specialised applications, such as for aircraft, tractors, forklifts, earthmover equipment, etc. 16.0 Company Positioning and Prospects 16.1 Major Industry Players Eversafe Rubber Group is principally involved in the development, manufacturing and distribution of tyre retreading materials, and tyre retreading operations. During periods of rising natural rubber and synthetic rubber prices which lead to more expensive new tyres, there is an increase in demand for retreaded tyres among commercial vehicles. On the other hand, decreasing natural rubber and synthetic rubber prices lead to lower prices of raw materials for tyre retreading materials. Therefore, the Eversafe Rubber Group is able to enjoy lower input prices in the manufacturing of tyre retreading materials. All tyre retreading materials contain rubber compounds as their core constituents. [The rest of this page is intentionally left blank] 29Infobusiness Research & Consulting Sdn Bhd © 2017 infobusiness research 136 8. INDUSTRY OVERVIEW (cont’d) infobusiness
The comparable companies to Eversafe Rubber Group are selected based on public listed companies in Bursa Malaysia Securities Berhad (“Bursa Securities”) and non-public listed companies registered with the Companies Commission of Malaysia. In order to be selected, the principal activities of these selected comparable companies to Eversafe Rubber Group must encompass both the development, manufacturing and distribution of tyre retreading materials, and manufacturing of retreaded tyres in Malaysia (please refer to table 6). Table 6: Principal Activities of Comparable Companies to Eversafe Rubber Group
Acten Tire Technology Sdn Bhd  It is principally involved in the manufacturing of tyre retreading materials and manufacturing of retreaded tyres. Other activities include machine installation, maintenance and modification, as well as designs and consultations.  Goodway Integrated Industries Berhad Eversafe Rubber Group1,-­ -l–­ It is principally involved in the development, manufacturing and distribution of re retreadin materials and re retreadin 0 erations.””‘-=—..:…..,-=-,—–L_—‘—–‘—–“J.:l….–‘–:-_—‘—–‘—L–..::.-‘–:—-‘–,——<“‘–.C…I:–=–.:.:..:……:…::.::..::…._…,….—-1 It is listed on Bursa Securities and is principally involved in the manufacturing of tyre retreading materials and manufacturing of retreaded tyres, as well as providing automotive maintenance services, including tyre­related services. In addition, it also offers consultancy services in rubber compound development, mixing and retreading to customers. It is also involved in ro er develo ment and construction.  Hiap Seng Tyre Group  It is principally involved in the manufacturing of tyre retreading materials and manufacturing of retreaded tyres, trading and manufacturing of new tyres for tractors, as well as providing automotive maintenance services, includin re-related selvices.  Kit Loong Tyre Group  It is principally involved in the manufacturing of tyre retreading materials and manufacturing of retreaded tyres, trading, as well as providing automotive maintenance services, including tyre-related services. It also rovides re retreadin lant desi n-and-build turnke rooects.  Nam Bee Rubber & Tyre Group  It is principally involved in the manufacturing of tyre retreading materials and manufacturing of retreaded tyres, as well as trading. It also provides automotive maintenance selvices, includin re-related services.  Sunrich Integrated Sdn Bhd  Sunrich Integrated Sdn Bhd and its subsidiaries are principally involved in the manufacturing of tyre retreading materials and manufacturing of retreaded tyres, as well as trading. It is a subsidiary of ecoWise Holdings Limited, which is listed on the Singapore Exchange and which is principally involved in resource recover activities.
Source: InfObusiness Research 30Infobusiness Research & Consulting Sdn Bhd © 2017

 

infabusiness research 137 8. INDUSTRY OVERVIEW (cont’d) infobusiness
The table below shows the product coverage of the comparable comparues, including the different subsidiaries of the non-public listed companies involved in the manufacturing of tyre retreading materials and/or manufacturing of retreaded tyres. Based on these criteria, there are 13 comparable companies to Eversafe Rubber Group. Table 7: Product Coverage of Comparable Companies to Eversafe Rubber
Infobusiness Research & Consulting Sdn Bhd © 2017  31  infabusiness research  138
8. INDUSTRY OVERVIEW (cont’d) infobusiness
16.2 Financial Comparisons of Comparable Companies For the purpose of fmancial comparisons of the comparable companies to Eversafe Rubber Group, the fmancial information of the non-public listed companies disclosed is at their subsidiary company level only. Consolidated fmancial information at the holding company level cannot be provided due to the reasons below, and as such, there will not be any rankings assigned to the list of companies below: 1) Some of the companies below do not report consolidated fmancial statements at their group levels; 2) Those that do report group level consolidated fmancial statements also include various other businesses unrelated to tyre retreading materials and/or tyre retreading operations, and hence those group level consolidated fmancial statements are not comparable to Eversafe Rubber Group. Furthermore, the fmancials of these other businesses are not able to be carved-out from the consolidated fmancial information because segmental fmancial information is not provided in the said consolidated financial statements; 3) The subsidiary companies’ fmancial information cannot be aggregated to derive consolidated results as this would misrepresent the fmancial figures because there are various inter­company sales between the subsidiary level companies within the same group that need to be eliminated to anive at consolidated results. Unfortunately, information on these inter­company sales are not available in the companies’ publicly available fmancial statements; 4) In addition, the subsidiary companies’ fmancial information cannot be aggregated to derive consolidated results as the fmancials in the table below are extracted based on the companies’ latest publicly available fmancial statements which comprise financial statements of different FYE; and 5) Some of the subsidiary level companies are involved in both tyre retreading materials and tyre retreading operations. Hence, it is also not appropriate to show a comparison split between tyre retreading materials and tyre retreading operations as the issues of items (3) and (4) still apply. Infobusiness Research & Consulting Sdn Bhd © 2017  32  infobusiness research  139

 

8. INDUSTRY OVERVIEW (cont’d) infobusiness Table 8: Financial Comparison of Comparable Companies to Eversafe Rubber Group
Notes: N. A. =Not Applicable / Not Available GP margin is computedfrom the ratio ofGP/ revenue PBT margin is computed/rom the ratio ofPBT/revenue
Source: Company search (rom the Companies Commission o(Malaysia and the respective audited financial statements, where relevant. 33Infobusiness Research & Consulting Sdn Bhd © 2017 infobusiness research 140

8. INDUSTRY OVERVIEW (cont’d)

 

infabusiness
For information pUllJoses only, according to the Annual Report 2015 of Goodway Integrated Industries Berhad, it was affected by the sluggish economic conditions in the Oceanic region and euro area, as well as in the PRe. Malaysian companies that were involved in exporting their products to such countries were impacted negatively, and consequently, Goodway Integrated Industries Berhad was also affected in the business ecosystem. A business ecosystem refers to the network of organisations such as suppliers, distributors, customers, competitors, etc. involved in the delivery of a specific product or service. In addition, Goodway Integrated Industries Berhad had also suffered an impaired loss on goodwill of RM6 million in the same FYE. [The rest of this page is intentionally left blank] Infobusiness Research & Consulting Sdn Bhd © 2017  34  infobusiness research  141
8. INDUSTRY OVERVIEW (cont’d) infobusiness
16.3 Market Share The sales of rubber compounds for tyre retreading by Eversafe Rubber Group (Malaysian operations) reached 4,034.1 metric tonnes in Malaysia in 2015. With the sales of rubber compounds used for tyre retreading computed at 18,374 metric tonnes in the same year in Malaysia, the market share of Eversafe Rubber Group for the rubber compounding industry used in tyre retreading was recorded at 22.0% in Malaysia in 2015. The market share was determined based on the number of metric tonnes of rubber compounds sold because there are no official figures available for rubber compounds used in tyre retreading (unlike sales of retreaded tyres). In turn, the number of metric tonnes of rubber compounds sold is computed based on the number of commercial vehicles in use in Malaysia, as disclosed by the Ministry of Transport. Figure 8: Market Share of Eversafe Rubber Group in the Rubber Compounding Industry for Tyre Retreading in Malaysia in 2015
Source: Inftbusiness Research Infobusiness Research & Consulting Sdn Bhd © 2017  35  infobusiness research  142
8. INDUSTRY OVERVIEW (cont’d) infobusiness The sales of retreaded tyres by Eversafe Rubber Group attained RM8.0 million in 2015. With the ex-factory sales of retreaded tyres in Malaysia reported at RM198 million in the same year, the market share of Eversafe Rubber Group was recorded at 4.0% in the same year.
Figure 9: Market Share of Eversafe Rubber Group in the Tyre Retreading Industry in Malaysia in 2015
Source: Infobusiness Research 17.0 Outlook and Prospects Malaysia has a natural comparative advantage in resource-based industries based on its rich resource endowment, such as the tubber products industry, including the tubber compounding and tyre retreading industries. The development of the resource-based industries, including tubber products, has featured importantly in the industrialisation strategies of Malaysia. The Government continues to promote the resource-based industries in order to diversify the country’s sources of growth, so as to avoid over reliance on foreign direct investments in the non-resource based industries in the manufacturing sector. As a resource-rich country, Malaysia needs to capitalise on this advantage in order to produce more value added products in which it has a comparative advantage. 36Infobusiness Research & Consulting Sdn Bhd © 2017 infobusiness research 143 8. INDUSTRY OVERVIEW (cont’d) infobusiness
Rubber compounds are clUcial in the manufacturing of retreaded tyres as well as new tyres. The performance of a tyre is influenced by the type of lUbber compounds used, as the latter can provide the balance of properties desired by automotive drivers. On the part of the rubber compounder, the manufacturing costs must also be acceptable for the achieved optimised properties. The demand for lUbber compounds is derived from tyre retreading, as the latter can provide performance similar to that of new tyres at a fraction of the cost and at a lower environmental impact. The consumption of lUbber compounds used in tyre retreading is expected to expand from 18,374 metric tonnes in 2015 to 21,800 metric tonnes in Malaysia in 2019, yielding a CAGR of 4.4% during the corresponding period (source: Infobusiness Research). The forecasted consumption growth of lUbber compounds used in tyre retreading in selected countries is shown in the table below. The PRC is expected to show the fastest CAGR growth of 8.9%, between 2014 and 2019. Table 9: Forecasted Consumption Growth of Rubber Compounds used in Tyre Retreading in Selected Countries (%)
PRe Hong Kong Thailand Indonesia Brazil Turkey Taiwan Japan Singapore South Korea  8.9 1.9 4.3 3.6 5.9 4.2 1.4 -0.8 0.7 0.2
Note: Hong Kong iJ a SpecialAdminiJtrative Region under the PRe.
Source: InfobuJineJJ ReJearch 37Infobusiness Research & Consulting Sdn Bhd © 2017

infobusiness research 144 8. INDUSTRY OVERVIEW (cont’d) infobusiness
In an increasing environment conscious world, recycling of consumer and industrial products, including tyres, is gaining momentum. Tyre retreading is a well-established and acceptable practice. The outlook for retreaded tyres depends on the general health of the economy and demand for goods and services. It is expected to remain healthy as both economic benefits and environmental concerns become more important in the future. As highway networks in Malaysia have expanded over the years, the usage of highways has become the primary means of transportation for the movement of consumer and industrial goods. In the towns and cities, buses are the main form of transportation for people of the lower income group. As fuel and maintenance costs are largely fixed, fleet operators leverage on retreaded tyres to lower operating costs, especially during periods of economic slowdowns. The development of the highway infrastructure and roads drive the usage volumes of retreaded tyres, which in turn, provides favourable conditions for the development of the rubber compounding industry. Tyres are essential and indispensable parts of an automotive. They are purchased on a recurring basis by motorists and fleet operators for the safe operation of their vehicles. It is also an offence to operate vehicles with bald tyre treads in Malaysia. Many companies are committed to road safety practices, including the usage of road-worthy tyres on their vehicles, as part of their corporate social responsibility. [The rest of this page is intentionally left blank] 38Infobusiness Research & Consulting Sdn Bhd © 2017 infobusiness research 145

 

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