Risk Factors

4. RISK FACTORS 4. RISK FACTORS NOTWITHSTANDING THE PROSPECTS OF OUR GROUP AS OUTLINED IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER, IN ADDITION TO THE OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS (WHICH MAY NOT BE EXHAUSTIVE) THAT MAY HAVE A SIGNIFICANT IMPACT ON THE FUTURE PERFORMANCE OF OUR GROUP BEFORE INVESTING IN OUR SHARES. If you are in any doubt as to the information contained in this section, you should consult your stockbroker, bank manager, solicitor, accountant or other professional advisers. 4.1 RISKS RELATING TO OUR BUSINESS OPERATIONS AND THE INDUSTRY IN WHICH OUR GROUP OPERATES 4.1.1 Dependence on the rubber glove industry Our Group is dependent on the rubber glove industry as our revenue is mainly derived from the supply of glove-dipping lines to rubber glove manufacturers. Thus, the financial performance of our Group will be affected by:­(i) the growth of the rubber glove industry, which is dependent on factors such as growth in the global and domestic healthcare industry, demand for rubber gloves arising from other end-user markets such as manufacturing industry, growth in the global economy and demand for rubber gloves from emerging markets due to changes in healthcare requirements; and/or
(ii) technological advancements of glove-dipping lines and/or rubber glove manufacturing processes.

As such, a decline in demand for rubber gloves by end-users or a slowdown in production capacity expansion by rubber glove manufacturers may have an adverse impact on the financial performance of our Group. Nevertheless, our Board believes that the future prospects of our Group remain positive with due consideration to the following factors:­(a) Anticipated growth in the rubber glove industry The demand for rubber gloves has demonstrated resilient growth with continuous year-on-year growth, albeit a temporary decrease in 20 II. This temporary decrease was caused by a market correction due to a larger than usual growth in global rubber glove demand in 20I0 as a result of the worldwide HIN1 pandemic. Nevertheless, the said temporary decrease in demand for rubber gloves has not affected the overall financial performance of our Group in 20 II. From 2009 to 2014, the global rubber glove demand has grown from 65.3 billion pairs to 88.0 billion pairs, registering a CAGR of 6.1 %. FUliher, Smith Zander forecasts rubber glove demand to increase from an estimated 94.2 billion pairs in 20 IS to 107.9 billion pairs in 2017, at a CAGR of 7.0% during the period. With the rubber glove industry being primarily dependent on the global healthcare industry, which has exhibited growth between 2004 and 2014 at a CAGR of 6.1 %, the risk of dependency is, to a certain extent, mitigated by the sustainability of the healthcare industry. (Source: IMR Report) In relation to the foregoing, new glove-dipping lines are expected to be installed by rubber glove manufacturers progressively to cater for such anticipated growth. [The rest of this page has been intentionally left blank] 4. RISK FACTORS (Collt’d) (b) Technological advancements With the advancement of technology in the design of glove-dipping lines and/or rubber glove manufacturing processes over time, newer and more advanced glove-dipping lines are being installed by rubber glove manufacturers with the aim of:­• achieving greater production efficiency through new glove-dipping lines with a higher production output per hour; and
• producing quality end-products, Le. rubber gloves, that conform to the required specifications, in terms of end-product attributes, such as the Acceptable Quality Level and physical properties,

thereby reducing their production time in producing rubber gloves and cost, in terms of utilities and staff costs. Notwithstanding the present positive outlook of our business operations, there can be no assurance that any adverse change in the rubber glove industry, such as lower demand from the end-user markets, fluctuation in raw material prices and shortage of raw material supply, will not have a material adverse effect on our Group’s business operations and financial performance. 4.1.2 Dependence on a few major customers Historically, the overall composition of our customers varies from year to year but a significant portion of our Group’s annual revenue for any given year was contributed by a small number of major customers as shown in Section 6.18 of this Prospectus. This was mainly due to the following reasons:­• the large value of each order from our major customers as a proportion to our total revenue. As our supply of glove-dipping lines is on project basis, each order from our customers can be comprised of several glove-dipping lines. As shown in Section 6.18 of this Prospectus, our major customers contributed more than 80.0% of our total revenue for the Period Under Review;
• the capacity constraints experienced by us as highlighted in Section 6.15.4 of this Prospectus; and
• the long implementation timeframe for each order that generally ranges between six (6) months and fifteen (15) months fi’om the date of receipt of a confirmed order.

As such, any cancellation of or variation in orders from these selected customers at any point in time may have a material adverse impact on our business operations and financial performance as we may not be able to secure replacement orders from other customers to cushion such impact. Nevertheless, we undeliake careful evaluation prior to accepting an order and detailed planning prior to project commencement as pmi of our measures to ensure timely implementation of the orders secured. Fmiher, over 70.0% of orders, in terms of value, for glove-dipping lines secured by us during the Period Under Review were from rubber glove manufacturers, which are either foreign-based or owned by multinational corporation/public listed company in Malaysia, and we believe they would have carried out detailed planning and preparation for their requirements before placing orders with us. For the Period Under Review, we have not experienced any cancellation of or variation in orders which had a material adverse impact on our business operations and financial performance. In addition, our Group constantly engages in marketing activities to secure new orders and to develop future business opportunities both locally and internationally. Such effOlis have enabled us to secure orders from new customers for continued business growth during the Period Under Review, thereby balancing our reliance on recurring customers, including related pmiies (i.e. YTY Industry Sdn Bhd and Green Prospect Sdn Bhd, which were parties related to our Group up to 11 November 2013 as further detailed in Section 10.1.2 of this Prospectus), for business opportunities. 4. RISK FACTORS (Collt’d) As illustrated in Section 6.18 of this Prospectus, we secured orders for glove-dipping lines from Rubberex Alliance Sdn Bhd and Cardinal Health 222 (Thailand) Ltd in the FYE 2014 and FYE 2015 respectively, both of which had become our major customers in the FYE 2015, replacing our other recurring major customers from the FYE 2013 to FYE 2014 (including YTY Industry Sdn Bhd and Green Prospect Sdn Bhd) as the main revenue contributors to our Group. We secured an order for glove-dipping lines from Central Medicare Sdn Bhd in December 2015 and pursuant thereto, it became the main revenue contributor to our Group for the FPE 2016. In line with our common business practice, such orders were secured after having gone through our marketing initiatives and negotiation process. Such business practice allows us to be able to cultivate potential customers and from there, to identify/secure potential new orders, while still executing the existing orders secured. Nevertheless, we continue to engage in marketing activities with YTY Industry Sdn Bhd and Green Prospect Sdn Bhd to develop future business oppOitunities for our Group and we have successfully secured new orders from Green Prospect Sdn Bhd for the FYE 2015 and FPE 2016 notwithstanding that it had ceased to be our related party. Notwithstanding the foregoing efforts, no assurance can be given that any cancellation of or variation in orders from our customers will not materially and adversely affect our Group’s business operations and financial performance.
4.1.3 Absence of long-term contracts We do not have any long-term contracts with our customers as our Group’s sales are based on purchase orders. This is due to the nature of our business and the prevailing industry practice, where orders from customers are usually secured on a project-by-project basis. As the specifications of our products vary from order to order depending on our customers’ requirements and hence, depending on the specifications, number and value of orders secured and implemented by us in a paIticular year, our Group’s revenue may fluctuate from year to year and such fluctuations may have a material adverse impact on our business operations and financial performance. During the Period Under Review, we experienced a year-on-year increase in revenue of up to 73.72%, except for a marginal decrease in revenue of 5.36% in FYE 2014, whilst our PAT recorded an increase of 86.84% in FYE 2013, but decreased by 13.88% in FYE 2014 before it increased again by 41.71% and 17.17% in FYE 2015 and FPE 2016 respectively. Please refer to Section 11.3.2 ofthis Prospectus for further details on the changes in our revenue and PAT during the Period Under Review. Notwithstanding the absence of long-term contracts, we believe that:­(a) our competitive strengths, particularly our design and manufacturing capabilities as well as the knowledge and experience of our management and technical teams as set out in Section 6.5 of this Prospectus, had enabled us to secure over 70.0% of our orders, in terms of value, during the Period Under Review from rubber glove manufacturers, which are either foreign-based or owned by multinational corporation/public listed company in Malaysia. Out of these orders, foreign sales, particularly from Indonesia and Thailand, contributed between 26.38% and 46.35% to our Group’s revenue during the Period Under Review. It is on this premise that we believe we are competitive both locally and internationally. Kindly refer to Section 6.4.2 of this Prospectus for the competitive landscape of glove-dipping line manufacturing in Malaysia and Thailand; and
(b) our commitment in providing our customers with quality products and services, and our previous business dealings with customers would provide us with a platform for fUlther business growth through repeat orders. In fact, a number of orders secured during the Period Under Review were contributed by orders from our recurring customers as well as rubber glove manufacturers which have had previous dealings with our Founders in relation to the supply of glove-dipping lines through Hup Lek Engineering prior to the setting up of HL Advance, for example Cardinal Health 222 (Thailand) Ltd and PT Medisafe Technologies.

[The rest of this page has been intentionally left blank] 27 4. RISK FACTORS (Cont’ll) An illustration of the value of orders for glove-dipping lines secured from our recurring customers for the Period Under Review is as follows:­FYE 2013  FYE 2014  Recurring  New  Recurring  New  customer  customer  Total  customer  customer  Total  Value of orders (RM’OOOl  25,920  28,000  53,920  5,602  11,633  17,235  As a % of total value of orders  48.1  51.9  100.0  32.5  67.5  100.0
FYE 2015  FPE 2016  RecutTing customer  New customer  Total  Recurring customer  New customer  Total  Value of orders (RM’OOO)  128,142  – 128,142  21,000  – 21,000  As a % of total value of orders  100.0  – 100.0  100.0  – 100.00
However, no assurance can be given that the foregoing efforts would continue to generate business opportunities for our Group in the future.
4.1.4 Dependence on Directors and key management Our achievements are largely attributable to the continued efforts of our Executive Directors and key management personnel who are directly responsible for the strategic direction, leadership, business planning and development, and management of our Group’s business operations. The loss of any of our Executive Directors and key management personnel, and our subsequent inability to recruit suitable replacement personnel in a timely manner, may adversely affect our business operations and financial performance as well as our continuing ability to compete effectively in the industry. For the Period Under Review, we have not experienced any loss of our Executive Directors or key management personnel. We recognise the importance of our ability to retain our Executive Directors and key management personnel and have in place a human resource strategy, which includes maintaining a competitive remuneration package and providing oppOliunities for career development for our employees. In addition, we have included the establishment of ESOS and the allocation of Pink Form Shares for our eligible Directors and employees pursuant to our Listing with the objective of providing added motivation and incentive for them to remain with us through equity pmiicipation. FUliher details of the allocation of Pink Form Shares to the Eligible Pmiies and the establishment of ESOS are set out in Section 3.3.2(i) and Section 3.3.4 of this Prospectus respectively. As pmi of our management succession plan, efforts have been made to promote and groom lower and middle management staff to gradually assume the responsibilities undeliaken by the senior management team to ensure continuity in our management team. Nonetheless, there can be no assurance that we will be able to recruit, develop and retain adequate number of skilled and motivated employees.
4.1.5 Project risks Our orders for glove-dipping lines are generally secured on project basis pursuant to the expansions of our customers’ rubber glove manufacturing plant. Orders under these planned plant expansion projects are subject to, amongst others, the following risks:­(i) Our customers may delay or cancel their projects due to unforeseen circumstances. Delays may arise from unexpected changes in project requirements, implementation timeline or unanticipated difficulties encountered. Any delay in our customers’ expansion projects will accordingly affect our recognition of revenues from the relevant orders. FUliher, the occurrence of any unforeseen circumstances that could render our customers’ expansion projects to be unfavourable may cause cancellation or termination of the relevant projects and hence, may affect our recognition of revenues from the relevant orders. [The rest of this page has been intentionally left blank] 4. RISK FACTORS (Cont’d) (ii) In the event of any variation of our customers’ expansion projects, orders for glove-dipping lines under the relevant projects awarded to us may change accordingly, and in celiain cases, may require approvals from our customers’ headquaJiers or senior management team. Time spent to obtain such approvals will slow down the completion of our orders for glove-dipping lines and hence, may affect our recognition of revenues from these orders in the respective year. (iii) Cost overruns may occur due to delay or variation of orders as a result of the aforesaid circumstances, which may affect our financial performance. Notwithstanding that we would not be able to intervene in our customers’ rubber glove manufacturing plant expansion projects, we undertake certain reasonable measures as paJi of our effOlis to minimise any negative financial impact on our results of operations arising from such potential project risks, paJiicularly we would carty out assessment on, inter-alia,:­• the specifications of each order to ensure smooth implementation and avoid cost overrun; and
• the industry reputation and credibility of our potential customers so as to establish their overall capability to successfully undeliake the relevant expansion projects.

Notwithstanding that there has not been any OCCUlTences of delay or cancellation of projects, variation in orders or cost overrun which had a material adverse impact on our business operations and financial performance for the Period Under Review, there can be no assurance that our financial perfOimance will not be adversely affected in the event of any change to or delay in the expansion projects of our customers in the future. 4.1.6 Credit risks We grant our customers credit terms in the range of thiIiy (30) days to ninety (90) days. Notwithstanding the credit period, some of our customers could experience cash flow difficulties in the course of their expansion given the substantial amount of capital outlay required for, among others, factory construction and fit-out as well as installation of new glove-dipping lines, which could in turn lead to long delays in our collection of payments. Any such delay in collection of payments owed to us by our customers could significantly reduce our operating cash flow and liquidity. If we are required to write-off any long overdue receivables, our results of operations could also be materially affected. In mitigating our exposure to credit risk, we assess the industry reputation and credibility of our existing and prospective customers prior to accepting their orders, based on our market knowledge and experience, and leveraging on our industry networks and contacts. In addition, we also regularly review our trade receivable ageing and monitor subsequent collection of trade receivables. In situations where our customer is unable to adhere to the agreed credit terms, we will first examine the reasons for the delay. If there is sufficient commercial justification, we will negotiate for settlement, which could include granting our customer an extension of time for payment. However, should the negotiations fail, we will initiate legal proceedings to recover the amount owed to us by the customers. While we have experienced delays in collection of trade receivables from celiain customers during the Period Under Review, we have received progressive payments from such customers in settling their debts without us having to resOli into legal proceedings to recover the same. As stated in Section 11.4.6(ii) of this Prospectus, 75.00% of the net trade receivables outstanding as at 31 July 2016 of RM14.64 million has been collected as at the LPD, whilst the remaining outstanding amount of RM3.66 million are mainly due from customers who generally required longer period for payment processing and/or have been making progressive payments to us. As a measure to mitigate our credit risk exposure to customers with long payment period, we will exercise careful judgment and take into consideration the following prior to accepting new orders from such customers:­(i) total amount of outstanding trade receivables owing by such customers prior to us accepting further orders and the extent ofthe Group’s credit risk exposure from such customers; 4. RISK FACTORS (Cont’rt) (ii) pricing of the relevant orders and the corresponding gross profit margin; and (iii) whether such customers have been settling their outstanding debts in recent months. Whilst long delays in collection of trade receivables had not resulted in any material adverse impact on our business operations and financial performance during the Period Under Review, there can be no assurance that we will not experience long delays in collection of trade receivables in the future with pmticular consideration to celtain customers with historical long payment period. As at the LPD, a customer with historical long payment period is also one (I) of our existing customers for glove-dipping lines and we may continue to experience delays in collection of trade receivables from the said customer in the course of our implementation of its order. Neveltheless, we acknowledge the credit risk in our on-going business dealings with the said customer and will continue to follow-up with such customer for payment of outstanding debts. With due consideration to the measures taken by us prior to accepting new order from the said customer and based on its improved payment record in the recent years, more particularly in the FYE 2014 and FYE 2015, we are of the view that the relevant credit risk exposure is manageable. Although there have been no allowance for impairment loss on trade receivables nor bad debt written off for the Period Under Review, there can be no assurance that we will not encounter any collection problem in the future, which may result in allowance for impairment loss on trade receivables and/or write-off of bad debts that may have a material adverse impact on our Group’s financial performance.

4.1.7 Adequacy of insurance coverage on assets and employees We maintain a number of insurance policies to protect us against potential losses and liabilities arising from various aspects of our business operations. We also review the level of our insurance coverage on a regular basis to determine the need for fmther coverage. For the Period Under Review, we have successfully made an insurance claim for RMO.16 million to compensate our loss of motor vehicle due to theft. As such claim was higher than the net book value of the lost motor vehicle, we did not incur any financial losses from the said incident. Other than such incidence, we have not made any insurance claim during the Period Under Review. However, there can be no assurance that our existing insurance policies will be adequate to cover all of our potential losses and liabilities in the course of our business operations. Fmther, we are subject to the risks relating to any inability to maintain or obtain insurance of the type and coverage desired at reasonable rates. In the event that our insurance coverage is insufficient to indemnify us against any significant losses and/or liabilities, it could have a material adverse effect on our business operations and financial performance.
4.1.8 Fluctuation in raw material prices The primary materials and pmts used in the fabrication of glove-dipping lines consist of steel materials (such as steel beams, pipes and plates), conveyor chain, former holders, nylon brushes, motors, insulant, heat exchangers and blower fans. Out of these materials and parts, steel materials are, by far, the highest in terms of cost in proportion to our total costs of materials and parts, and are subject to continuing price fluctuations. The prices of steel materials are subject to, amongst others, market supply and demand conditions, prices of its raw materials (such as iron ore), prevailing energy costs and governmental regulations. Any material change in the conditions of the aforesaid factors may cause an increase in steel material prices, which may lead to an increase in our manufacturing cost and accordingly, may have a material adverse impact on our business operations and financial performance. Neveltheless, we believe that the volatility in the cost of steel materials is manageable as our purchases are generally made upon receipt of confirmed orders from our customers so as to minimise the impact of any adverse price fluctuations in steel materials. Further, based on our previous business dealings with our steel material suppliers, they regularly keep us abreast of the price trend of steel materials to ensure that our business operations will not be affected by sudden unanticipated increase in steel material prices. 4. RISK FACTORS (Co/lt’d) For the Period Under Review, our Group has not encountered any major cost overruns arising from fluctuation in raw material prices. However, there is no assurance that our Group’s profitability will not be adversely affected by any fluctuation in prices of raw materials in the future. 4.1.9 Sudden and unexpected equipment failures and natural disasters which may lead to disruptions to our business operations Our Group’s manufacturing activities are suppOited by machinery and equipment such as welding, cutting and roll forming machinery. These machinery and equipment may, on occasion, be out of service as a result of unanticipated failures or damages sustained during operations. FUither, our manufacturing plant is also subject to catastrophic loss due to natural disasters such as floods and outbreak of fires. These unpredictable events may cause interruptions to, or prolonged suspension of, a substantial pmt of our manufacturing facilities, or may cause damage to, or destruction of, all or part of our manufacturing plant. In addition, as our manufacturing activities are dependent on continuous supply of electricity, any major disruptions to the supply of electricity may also result in interruptions to our business operations. For the Period Under Review, we have not experienced any occurrence of sudden and unexpected equipment failures and natural disasters which had led to disruptions to our business operations. Any prolonged interruptions in our business operations due to the aforementioned factors will affect our production schedules and timely execution of our orders from customers. This could in tum have an adverse impact on our business operations, financial performance and industry reputation. We mitigate the risk of machinery and equipment breakdown and failure by ensuring regular maintenance and routine servicing of our machinery and equipment are carried out. In addition, our machinery and equipment suppliers also provide on-site support ifrequired. 4.1.10 Effective management of growth or successful implementation of our future plans and strategies We plan to enhance our market presence through further expansion of our local and foreign businesses. In order to successfully implement our expansion plan, it is imperative that our Group remains competitive, and thus, we are committed to continuously enhancing the design and specifications of glove-dipping lines manufactured by us so as to enable our customers to attain increased cost­efficiencies in their rubber glove manufacturing process. Accordingly, we have plans to, inter-alia, expand our production capacity and set up a dedicated R&D team to formalise our R&D activities primarily on on-going product development and improvement of glove-dipping processes via technological improvements. Please refer to Section 6.20 of this Prospectus for further details of our future plans and strategies. The implementation of our future plans involves substantial cost outlay including, but not limited to, land acquisition and factory construction costs, capital expenditures for the purchase and installation of new machinery and equipment, costs of setting up our R&D team and facilities, marketing and promotional expenses, and other working capital requirements. Such substantial cost outlay is proposed to be partly financed through the proceeds from our Public Issue, where we intend to allocate RM9.00 million and RM1.50 million of the proceeds from our Public Issue to finance/part-finance our land acquisition/factory construction costs and for the setting up of R&D facilities respectively. Further details of the utilisation of proceeds arising from the Public Issue are set out in Section 3.8 of this Prospectus. Although our Executive Directors and key management personnel are experienced in this business and we have sufficient resources at our disposal to execute our future plans, there is no assurance that we will be successful in executing our future plans, nor can we assure that we will be able to anticipate, and accordingly mitigate with adequate measures, all business and operational risks arising from our future plans. There can also be no assurance that the results or outcome of our future plans will meet our expectations and contribute positively to our future financial performance. [The rest of this page has been intentionally left blank] 31 4. RISK FACTORS (Collt’d) 4.1.11 External funding and financing to meet future capital needs Our ability to obtain external financing and to make timely repayments of our debt obligations are subject to various uncertainties, including our future financial condition and performance, the markets for our products, the cost of financing and the condition of financial markets, and the continuing willingness of banks to provide new loans. FUl1her information in relation to our current outstanding borrowings is set out in Section 11.4.3 of this Prospectus. Although we presently rely on minimal external financing, there can be no assurance that any required additional financing, either on a shol1­term or long-term basis, will be made available to us on terms satisfactory to us. If adequate funding is not available when needed, or is available only on unfavourable terms, meeting our capital needs or otherwise taking advantage of business oppOl1unities or responding to competitive pressures may become challenging, which could have a material and adverse effect on our business operations and financial performance. 4.1.12 Product defects Our products are generally subject to a warranty period of up to one (1) year from handover and during the warranty period, we are responsible to repair and/or exchange cel1ain components of our products should our customers experience any product defects. We are thus obliged to ensure that our final products are fully functional in accordance with the specifications and requirements of our customers before they are handed over to our customers. Any OCCUlTence of product defects will be reflected as a cost to us in the form of repair costs and/or product warranty claims, and may also have an adverse implication on our industry reputation. An adverse reputation or negative perception regarding the quality of our products, or our Group in general, could also result in a decrease in demand for our products. Further, any incidence of product defects or failure that causes serious injury may result in lawsuits and/or civil liability claims, and loss of customer confidence in our products, which could materially impact future demand for our products, thus adversely affect our financial performance. Nevel1heless, we have in place in-process quality assurance procedures for our manufacturing processes which, to a certain extent, enable us to minimise the occurrence of product defects or failures. Although we have not incurred any material cost on repair and/or replacement of our products sold to customers due to product defects during the Period Under Review, no assurance can be given that any occurrence of product defects in the future will not have an adverse impact on our financial performance. 4.1.13 Foreign exchange fluctuations Revenue from our foreign sales is either denominated in RM or USD, whilst majority of our foreign purchases of materials and parts for the Period Under Review were denominated in USD. In this regard, we are exposed to potential losses on foreign currency exchange, pm1icularly arising from fluctuations in the exchange rate of the USD against the RM. An illustration of our revenue and purchases of materials and parts for the Period Under Review in RM, USD and other foreign currencies is as follows:­Revenue FYE 2013  FYE 2014  FYE 2015  FPE 2016  RM’OOO  %  RM’OOO  0/0  RM’OOO  %  RM’OOO  %  Revenue denominated in:­ -RM  45,987  99.9  42,016  96.4  40,816  53.9  35,109  73.6  -USD  55  0.1  1,552  3.6  34,881  46.1  12,583  26.4  Total revenue  46,042  100.0  43,568  100.0  75,697  100.0  47,692  100.0
4. RISK FACTORS (Collt’d) Purchases of materials and parts FYE 2014 FYE 2015FYE 2013 FPE 2016 RM’OOO 0/0 0/00/0% RM’OOORM’OOO RM’OOO Purchases denomiuated in:­-RM 35,18627,579 99.7 23,420 92.9 69.2 24,117 69.1 -USD 1,633 6.5 9,068 27.5 -Others* 24 0.1 17.9 9,601 153 0.6 6,559 1,201 3.4 Total purchases 55 0.2 12.9 27,658 100.0 25,206 50,813 34,919100.0 100.0 100.0 Note:­* Other foreign currencies such as Singapore Dollar, Indonesia Rupiah, Thailand Baht and Hong Kong Dollar. Cunently, we maintain foreign currency accounts in USD for payment of our foreign purchases and/or deposits of the receipts from our foreign sales. Although we do not enter into any hedging aITangement for our Group’s foreign currency exposure, we constantly monitor the movements of USD against the RM and our Group’s foreign currency exposure to assess the need for hedging. As illustrated in the table above, we generally incur higher purchases denominated in foreign currencies when there are conesponding foreign orders denominated in USD being implemented, Le. when certain materials and parts required for our foreign orders are sourced in the country where our foreign customers are based, paI1icuiarly for the FYE 2015 and FPE 2016 in view of our execution of an order for glove-dipping lines in Thailand. Whilst recent developments in the global financial markets and the international political scenarios have resulted in volatilities in foreign currency exchange rates, whereby the RM has depreciated 8.31 % against the USD in the six (6)-month period up to the LPD, we do not expect the said volatilities in foreign currency exchange rates to materially affect our overall financial performance subsequent to the FPE 2016 in view that our only existing order denominated in USD is already at its advanced stage of implementation with a sum of USD 1.13 million (equivalent to RM5.00 million based on the exchange rate of USDI :00 : RM4.4205 as at the LPD) to be recognised as revenue subsequent to the FPE 2016 and hence, our further purchases denominated in foreign currencies are expected to reduce accordingly. For the Period Under Review, our Group has not encountered any material foreign currency exchange fluctuation that has resulted in any material adverse impact to the financials of our Group. Our Group’s realised and unrealised gain/loss on foreign exchange for the Period Under Review are as follows:­FYE 2013 (RM’OOO)  FYE 2014 (RM’OOO)  FYE 2015 (RM’OOO)  FPE 2016 (RM’OOO)  Realised gain/(loss) on foreign exchange Unrealised gain/(loss) on foreign exchange  -3  63 50  830 (209)  (524) 1,874  Net gain on foreign exchange  3  113  621  1,350
As illustrated above, we recorded minimal net gain on foreign exchange for the FYE 2013 in line with our low amount of revenue and purchases that were denominated in foreign currencies for the same period. For the FYE 2014, we recorded a net gain on foreign exchange totalling RMO.ll million mainly due to the impact of the appreciated USD against RM on our trade receivables and cash and bankbalancesdenominated in USD. FortheFYE20I5,werecordedanetgainonforeignexchange of RMO.62 million mainly due to the strengthening of USD against RM and our higher collection of trade receivables in USD in line with our higher revenue denominated in USD for the FYE 2015. For the FPE 2016, we recorded a net gain on foreign exchange of RMI.35 million due mainly to the positive impact of the USD fluctuation against RM during the FPE 2016 on our trade receivables and cash and bank balances denominated in USD. Kindly refer to Section 11.3.3(v) and Section 12 of this Prospectus for the impact of foreign exchange fluctuations on our financial performance and our exposure to foreign currency risk respectively. [The rest of this page has been intentionally left blank] 4. RISK FACTORS (Cont’d) Notwithstanding that we have not experienced any material foreign cUlTency exchange fluctuation that has resulted in a material adverse impact to the financials of our Group, there can be no assurance that any future fluctuation in foreign currency exchange rates will not have a material adverse impact on our Group’s earnings. 4.1.14 Political, economic and regulatory considerations Notwithstanding that we operate principally in Malaysia, we derive a significant portion of our revenue from foreign sales to various countries including, inter-alia, Thailand, Indonesia, India and China. For the FYE 2013, FYE 2014, FYE 2015 and FPE 2016, our foreign sales accounted for 32.77%, 34.08%, 46.35% and 26.38% of our total revenue respectively. As we continue to expand our business, our financial condition and results of operations are expected to be increasingly affected by economic, political, legal or social conditions of the countries where we operate, transact business or have interests, making us increasingly susceptible to the operational risks caused by these conditions. These risks include, among others, changes in political leadership, changes in economic conditions, changes in interest rates and changes in government policies such as method oftaxation, currency exchange rules and introduction of new regulations. Conducting business in other markets also requires us to comply with foreign laws and regulations covering various aspects of our operations and these laws and regulations, where relevant, may change, or may be updated and amended, from time to time. Much of the above changes are beyond our control. Whilst our Group may take measures to mitigate the aforementioned risks through keeping abreast of economic and regulatory changes in the relevant countries, there is no assurance that any adverse changes in political, economic and regulatory conditions of the countries in which we transact business will not materially affect our financial performance. Nevertheless, it is important to note that our Group’s revenue is not solely derived from anyone particular country, thus reducing the susceptibility of our Group’s business operations and financial performance to any political, economic and regulatory changes in a particular country. Moreover, there has not been any political, economic and regulatory considerations which had a material adverse impact on our business operations and financial performance for the Period Under Review.
4.1.15 Reliance on the services of subcontractors The glove-dipping line industry is labour intensive and requires substantial manual labour in fabrication and installation works. We rely mainly on our subcontractors for fabrication and installation works in our business operations as we believe it would not be cost effective to maintain a large production workforce given the project-based nature of our orders fi’om customers. For the FYE 2013, FYE 2014, FYE 2015 and FPE 2016, our subcontractor costs accounted for 16.74%, 18.21%, 12.76% and 14.84% of our total cost of sales respectively. In view of our reliance on the services of subcontractors for fabrication and installation works, any failure by a subcontractor to deliver satisfactory services as required by us and our customers may result in losses to us in the form of rectification costs and may also adversely affect our industry reputation. However, we believe that such risks are mitigated as follows:­• in addition to the competitiveness of their terms of engagement, our criteria for the appointment of subcontractors also include satisfactory past working experience with them. Based on our previous dealings with our subcontractors, we are of the opinion that they are reliable and experienced;
• we maintain working relationships with a number of suitably experienced subcontractors in the industry so as to ensure that we are not excessively relying on the services of any particular subcontractors. For the Period Under Review, we engaged between four (4) and seven (7) subcontractors; and
• the subcontractors are under the supervision of our project manager and site engineer.

4. RISK FACTORS (Cont’ll) Although we have not previously experienced any major disruption to our business operations as a result of our dependence on subcontractors, no assurance can be given that we will always be able to procure such services in a timely manner for our future orders. 4.1.16 Risks associated with technological changes Our business is susceptible to changes in technology. With the advancement of technology and continual R&D in the rubber glove manufacturing process aimed at, inter-alia, improving cost efficiencies, new design and/or specifications for glove-dipping lines may be developed from time to time. Although we dedicate continuous efforts to improving the design and specifications of glove­dipping lines manufactured by us, there can be no assurance that we will be able to develop new glove­dipping lines with enhanced design and specifications to meet the needs of our customers, nor can there be any assurance that there will be continuing market acceptance of our products following technological changes. FUlther, our competitors may, ahead of us, successfully develop glove-dipping lines with enhanced capability that allows rubber glove manufacturers to achieve improved efficiencies and cost savings. If we are unable to successfully develop glove-dipping lines with similar or more advance capability in a timely manner or at all, it could lead to a loss of business to our competitors and our business operations and financial performance may be adversely affected. 4.1.17 Risks associated with our investment in R&D activities We recognise the impOitance of R&D activities to the long term growth and sustainability of our business and it is one of our future plans to set up a dedicated R&D team to, inter-alia, undertake continuous R&D for product development as well as on-going improvement of glove-dipping processes via technological improvements. We plan to staff our R&D team initially with one (1) chemist, one (1) engineer and two (2) draughtsmen, and will gradually expand the team as and when required. We will also invest in equipment such as simulation software which will be used to compute and simulate possible outcomes of new upgrades and developments. Pursuant to our Listing, we have allocated RMI.50 million of the proceeds from our Public Issue for the setting up of R&D facilities. Further information on our future plan to set up a dedicated R&D team is set out in Section 6.20.4 of this Prospectus. Notwithstanding our commitment and efforts, we may not be able to accurately anticipate trends in technological or product development and market demand. If the anticipated development trend or market demand does not materialise, our R&D effOits may not yield the anticipated level of economic benefits to our Group. Furthermore, our R&D efforts may not result in the development of products with enhanced features in a timely manner to enable us to take advantage of the opportunities available in the market. In addition, the level of economic benefits that can be derived from newly developed products may be affected by how quickly our competitors can replicate these products or develop better alternatives. As such, there can be no assurance that our proposed investment in R&D activities will yield economic benefits and contribute positively to our business operations and financial performance in the future. Neveltheless, we will undeltake careful planning and supervision of our R&D activities so as to maximise their potential economic benefits to our Group. 4.1.18 Competition from other market players within the glove-dipping line industry In general, our customers are careful and diligent when selecting manufacturers of glove-dipping lines where they place utmost impOitance on product quality and design capability. Hence, to remain competitive, our Group must continuously ensure that we maintain the above attributes as failure to do so may negatively impact our Group’s track record and industry reputation, leading to a loss of business to our competitors, which could in turn negatively affect our financial performance. [The rest of this page has been intentionally left blank] 35 4. RISK FACTORS (Collt’d) We believe that our Group would be able to stay competitive based on, inter-alia, our track record, our design and manufacturing capabilities as suppOited by our experienced management and technical teams, and our ability to comply with the requirements of our customers, as fUither discussed in Section 6.5 of this Prospectus. In addition, we are committed to the continuous improvement of our products and services. As pmt of our future plans, we plan to set up a dedicated R&D team to focus on product development and process improvement, which we believe will contribute positively towards our long term growth and sustainability within the glove-dipping line industry. Please refer to Section 6.20.4 of this Prospectus for the details of our plans to setup a dedicated R&D team. Notwithstanding this, there can be no assurance that we will be able to remain competitive in the future and that our financial performance will not be adversely affected by market competition. 4.1.19 Fluctuations in our gross profit margin The pricing of our glove-dipping lines vary from customer to customer as they are made to customers’ specifications with different requirements for, amongst others, production parameters, dimensional measurement and process complexity. Accordingly, the gross profit margin of our orders for glove­dipping lines varies from order to order and is generally determined by us after taking into consideration, amongst others, the specifications of the subject glove-dipping lines with due regard to the materials used, production parameters, dimensional measurement, process complexity and logistics arrangement as well as the potential repeat orders in the future. In addition, the business strategy adopted by us in securing orders, for instance as highlighted under the commentaries on historical gross profit and gross profit margin for the FYE 2015 and FPE 2016 of Section 11.3.2(iii) of this Prospectus, may also affect our gross profit margin from time to time. In view of the above, our gross profit margin fluctuates from year to year and for the Period Under Review, we experienced an overall gross profit margin which varied between 14.11 % and 26.68%. In fact, our gross profit margin decreased from 26.68% for the FYE 2013 to 20.11 % for the FYE 2015 and fmther to 14.11 % for the FPE 2016 mainly because celtain orders for the FYE 2015 and FPE 2016 were secured by us at a lower gross profit margin. These orders were secured by us having considered, amongst others, the shorter implementation timeframe for an order whose specifications were similar to recently implemented orders, and the potential repeat orders to be secured from the same customers, as more particularly explained in Section 11.3.2(iii) of this Prospectus. Nevertheless, we continued to achieve PAT growth for the said financial years and period, whereby our PAT increased by RM3.57 million to RM12.13 million for the FYE 2015 (FYE 2014: RM8.56 million) and by RMO.91 million to RM6.21 million for the FPE 2016 (FPE 2015: RM5.30 million). Notwithstanding that the fluctuations in our gross profit margin have not adversely affected our overall financial performance during the Period Under Review, there can be no assurance that historical or current levels of gross profit margin can be sustained in the future and if there is a fUither decline in our overall gross profit margin, there can be no assurance that we will be able to achieve or maintain our profitability in the future. [The rest of this page has been intentionally left blank] 4. RISK FACTORS (Collt’d) 4.2 RISKS RELATING TO OUR SECURITIES AND THE IPO 4.2.1 Influence by our Promoters Upon Listing, our Promoters will collectively hold a total of approximately 72.00% of our enlarged issued and paid-up share capital. Depending on how they choose to vote and due to their shareholdings, our Promoters will generally be expected to have significant influence on the outcome of certain matters requiring the vote of our shareholders unless they are required to abstain from voting by law andlor as required by the relevant authorities. Nevel1heless, as a step towards good corporate governance, we have appointed three (3) Independent Non-Executive Directors and set up an Audit Committee to ensure that, inter-alia, all future transactions involving related pm1ies are entered into on an arm’s length basis, on normal commercial terms which are not more favourable to the related parties than those generally available to the public and are not detrimental to our minority shareholders. 4.2.2 No prior market for our Shares Prior to our Listing, there has been no public market for our Shares. Accordingly, there can be no assurance that an active market for our Shares will develop upon our listing on the ACE Market of Bursa Securities or, if developed, that such a market can be sustained. Our IPO Price has been determined after taking into consideration a number of factors including, but not limited to, our historical eamings, fmancial and operating history, prospects and future plans. There can be no assurance that our IPO Price will cOlTespond to the market price at which our Shares will trade upon or subsequent to our Listing or that an active market for our Shares will develop and continue upon or subsequent to our Listing. The price at which our Shares will trade on the ACE Market of Bursa Securities after our Listing may be influenced by a number of factors including, amongst others, the depth and liquidity of the market for our Shares, general market and economic conditions, investors’ individual perceptions of our Group, our financial performance andlor future prospects. In addition, many of the risks described elsewhere in this Prospectus could materially and adversely affect the market price of our Shares. Thus, there can be no assurance that our Shares will not trade at prices lower than our IPO Price. 4.2.3 Volatility in the market price of our Shares The market price of our Shares could be affected by a number offactors, including the following:­(i) the risk factors as stated in this Section 4 of this Prospectus;
(ii) general market, political and economic conditions;

(iii) valuation and recommendations of securities analysts on the fair value of our Shares; (iv) variations in our results of operations;
(v) announcements of major business transactions or corporate exercises by our Group;
(vi) fluctuations in the share market prices and trading volume; andlor

(vii) our involvement in material litigation. If the trading volume of our Shares is low, the price fluctuation may be aggravated, particularly as no stabilising transactions will be undertaken in respect of our Shares in connection with our Listing. [The rest of this page has been intentionally left blank] 4. RISK FACTORS (Collt’d) 4.2.4 Delay in or cancellation of our Listing The occurrence of anyone or more of the following events, which are not exhaustive, may cause a delay in or cancellation of our Listing: (i) the Underwriter exercising its rights pursuant to the Underwriting Agreement discharging itself from its obligations therein;
(ii) the identified investors fail to subscribe for the pOliion of the IPO Shares intended to be placed out to them; or

(iii) our Company is unable to meet the minimum public shareholding spread requirement, i.e. at least 25% of the issued and paid-up capital of our Company must be held by not less than 200 public shareholders with each holding not less than 100 Shares upon completion of our IPO and at the point of our Listing. Although our Board will endeavour to ensure compliance of various requirements so as to facilitate the successful listing of our Company on the ACE Market of Bursa Securities, no assurance can be given that the abovementioned factors will not cause a delay in or non-implementation of our Listing. In the event of a cancellation of our Listing, all monies paid in respect of any application accepted from you will be returned in full without interest within fOUlieen (14) days in compliance with the provision of sub-section 243(2) of the CMSA. 4.2.5 Payment of dividends to our shareholders Our Company, being an investment holding company, derives its income mainly from dividends receivable from our subsidiary. Hence, our ability to pay dividend is largely dependent on the performance of our subsidiary. In determining the amount of any dividend recommendation, we will also take into consideration a number of factors including, but not limited to, our financial perfonnance, cash flow requirements, covenants of existing/future bank borrowings, debt service requirements, financing commitments, availability of distributable reserves and future expansion plans. There is also no assurance that we will be able to record profits and have sufficient funds above our funding requirements, other obligations and business plans to declare dividend to our shareholders in future. 4.2.6 Forward-looking statements Celiain statements in this Prospectus are based on historical data which may not be reflective of our future results, and others are forward-looking in nature, which are subject to uncertainties and contingencies. Although all forward-looking statements are based on estimates and assumptions which are believed to be reasonable at this time, such estimates and assumptions are subject to known and unknown risks, unceliainties and other factors which may cause our actual results, perfOlmance or achievements to differ materially fi’om the future results, performance or achievements expressed or implied in such forward­looking statements. In light of these unceliainties, the inclusion of forward-looking statements in this Prospectus should not be regarded as a representation or warranty by us or our advisers that the plans and objectives of our Group will be achieved. [The rest of this page has been intentionally left blank]

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