Hartalega likely to sustain robust net profit growth in FY18F

KUCHING: Hartalega Holdings Bhd ( Hartalega) should be able to sustain its net profit growth in financial year 2018 forecast (FY18F).

As for Hartalega’s revenue, AmInvestment Bank Bhd (AmInvestment Bank) expected this to grow by 29 per cent in FY18F underpinned by a 16 per cent increase in production volume.

“Two production lines at Plant 4 are expected to commence operations this month,” the research firm said.

“These will be followed by the commissioning of two production lines per month until Plant 4 is fully completed at year- end.”

AmInvestment Bank noted that upon completion, Hartalega’s annual production capacity will rise by 18 per cent from 27 billion to 32 billion pieces.

The research firm further noted that currently, three plants with 36 lines are operational at the NGC (Next Generation Integrated Glove Manufacturing Complex).

“Construction of Plant 5 and Plant 6 at NGC are expected to commence in August 2017 and August 2018 respectively,” AmInvestment Bank said.

“Both plants will increase Hartalega’s production capacity by an additional 4.7 billion pieces each.”

The research firm believed that the progressive commissioning of production lines will help keep the global supply of gloves in check, thus preventing an oversupply situation, which will suppress margins.

According to AmInvestment Bank, Hartalega’s bottom line is also expected to receive a boost from reinvestment allowances, which will lower the group’s effective tax rate.

The research firm forecasted effective tax rates at 10 per cent to 15 per cent in the coming three years compared with 18.8 per cent in financial year 2017 (FY17).

“Presently, Hartalega is one of the few glove makers in Malaysia that manufacture Grade A nitrile gloves,” AmInvestment Bank said.

AmInvestment Bank believed that this will enhance Hartalega’s profit margin as there is a limited number of suppliers for high- quality nitrile gloves.

The research firm estimated Hartalega’s earnings before interest, tax, depreciation and amortisation ( EBITDA) margins at 24 per cent in FY18F and FY19F compared with 23 per cent in FY17.

In the long term, AmInvestment Bank believed that product innovation would support Hartalega’s net profit.