Analysts positive on Hartalega’s strong fundamentals
KUCHING: Hartalega Holdings Bhd’s ( Hartalega) strong production growth and improving operational efficiency have been viewed positively by analysts.
Following a recent visit to Hartalega’s NGC plant in Sepang, the research arm of Affin Hwang Investment Bank Bhd (AffinHwang Capital) pointed out that the company’s production capacity is expanding at 15 to 20 per cent per annum over the next three years.
It further noted that the group’s production capacity is 21.3 billion pieces in the financial year 2017 ( FY17) and would gradually expand to approximately 30 billion pieces and 34 billion pieces in FY18 and FY19 respectively.
“Hartalega expects the demand for glove products to remain strong in the coming years, owing to the large untapped market in developing countries and increasing consumption of glove per capita in line with the growing health awareness.
“Hence, the company is expanding its production capacity to cope with rising global demand. This note marks a transfer of analyst coverage,” the research team said.
Aside from that, AffinHwang highlighted that Hartalega has one of the lowest rejection rate in the industry at 0.3 per cent or 30,00PPM ( 3,000 rejects for every one million glove products).
“All the 41 production lines at NGC are running at a rate of 45,000 pieces per hour. The building of three additional NGC plants (Plant 4 to 6) will continue to underpin Hartalega’s capacity expansion in the coming years, adding capacity to produce 14.7 billion pieces per annum.
“The group has allocated approximately RM300 million per annum for capital expenditure (capex), of which 60 per cent of capex can be utilised to offset statutory income for tax purposes. The impact of the planned capacity expansion is reflected in our FY18 to FY20E earnings,” it added.
All in, AffinHwang maintained a ‘hold’ call on the stock.
It said, “We continue to like Hartalega for its strong volume growth from increasing production capacity, and improving operational efficiency.”
It noted that key risks to its view include sudden movements in the dollar against the ringgit, sharp changes in raw material prices, and greater or lesser-than- expected price competition among the glove manufacturers.