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Covid-19: Hartalega plant utilisation tops 90% as glove demand surge

Covid-19: Hartalega plant utilisation tops 90% as glove demand surge

23 Apr 2020

Hartalega Holdings Bhd told analysts that the rubber glove manufacturer’s sales lead time has increased to five months from two months, while plant utilisation rate rose above 95% from 88% in the previous financial year, as the Covid-19 pandemic led to a surge in demand for the company’s products.

TA Securities Holdings Bhd analyst Tan Kong Jin, who recently spoke to Hartalega, wrote in a note today that Hartalega indicated the surge in rubber glove demand has led to a 3% to 5% higher average selling price (ASP) for the company’s products.

According to Tan, key takeaways from the recent discussion with Hartalega include “orders feasibility of up to five months and capacity expansion.”

“Hartalega’s NGC (Next Generation Integrated Glove Manufacturing Complex) plant 6 (4.7bn gloves) has commissioned four out of a total of 12 lines in 1Q20. However, since the implementation of the movement control order, installation of new lines were halted. Positively, we understand that the group is in the midst of resuming its expansion plans. The priority is to ensure that the contractors are free from Covid-19 which would require them to get a test as per MITI (Ministry of International Trade and Industry) requirements.

“We expect the group to ramp up the remaining 8 lines in P6 by 3Q20. Thereafter, earnings growth would be supported by Plant 7 (+3.4bn gloves/annum) which is targeted to commence 1st line operations by early 2021. All in, Hartalega’s rubber glove capacity is expected to increase by 17% to 44.7bn gloves/annually by FY22,” Tan said.

According to Tan, Hartalega is scheduled to release its financial results for the fourth quarter ended March 31, 2020 (4QFY20) in the fourth week of May, 2020.

The analyst said impact from the increases in rubber glove demand and ASP due the Covid- 19 pandemic are expected to be seen from 1QFY21 onwards.

“No changes to our FY20 earnings forecast, but we raised earnings by 2.2% for FY21/FY22 after increasing the average utilisation rate by 1.2p.p (percentage points) to 92%. Upon the earnings revision, TP (target price) for Hartalega is increased to RM7.20/share (previously RM7.04/share), based on an unchanged PE (price-earnings) multiple of 44.0x CY21 (calendar year 2021) EPS. Maintain sell due to pricey valuations,” the analyst said.

At Bursa Malaysia today, Hartalega’s share price closed down seven sen or 0.92% at RM7.50, for a market capitalisation of RM25.38 billion. The stock saw 8.17 million shares traded.

Source: The Edge Markets

Posted on : 23 April 2020
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