AllianceDBS Research in a report yesterday said it is encouraged by the acquisition, as it is a solid indication of the group’s commitment on its longer term expansion and growth.
“Hartalega is planning to commission a total of 82 lines with total capacity of approximately 32 billion pieces of gloves per annum at this facility. Construction is targeted to commence from 2021 and complete in 2029. Capital expenditure for this new plant is estimated at RM3bil.”
The research house said the land acquisition will be funded by internally generated funds.
“Based on our operating cash flow forecasts, we believe Hartalega should have no issue funding the acquisition.”
Hartalega announced on Wednesday that it is purchasing 38.49 hectares of land located near its complex in Sepang for RM263.1mil.
The acquisition is in line with the medium and long term growth of the company to continue create greater value and earnings potentials.
“The existing expansion Next Generation Integrated Glove Manufacturing Complex Sepang (NGC) is scheduled to be fully completed in year 2021, ” it said.
Meanwhile, Hong Leong Investment Bank (HLIB) Research said the acquisition will enable Hartalega to progressively expand its capacity to meet the rising global glove demand.
“The site which will be NGC 2.0 is strategically located near to its existing NGC in Sepang. It is within close proximity to the West Coast Expressway interchange in Banting, surrounded by nearby rapid industrial and housing development as well as flat topography. The land acquisition is scheduled for completion by the second half of 2022.”
The research house noted that the new complex will hold seven plants.
“Earnings growth is expected to come in earliest in 2023. We also expect the margins to be similar to NGC Sepang, due to similar number of lines with similar line speed.”
The research house said it is maintaining its earnings forecast for now, as contributions from NGC 2.0 is beyond its forecast horizon at this juncture.
CGS-CIMB said the land acquisition “fits Hartalega’s criteria for expansion.”
Source: The Star