Hartalega shares up on strong 1QFY19, margin improvement indicates demand remains robust
KUCHING: Hartalega Holdings Bhd (Hartalega) emerged as one of the top gainers on Bursa Malaysia yesterday, with the share price rising 15 sen or 2.43 per cent to RM6.32 as at 10.25 am, after the company posted a higher net profit for the first quarter (Q1) ended June 30, 2018.
Yesterday, the world’s largest synthetic rubber gloves producer said its Q1 net profit soared 29.7 per cent to RM125 million from RM96.4 million recorded in the same corresponding quarter last year, driven by organic growth via higher sales volume.
According to Affin Hwang Investment Bank Bhd ( Affin Hwang), the improvement in the earnings before interest, tax, depreciation and amortisation ( EBITDA)/ glove (‘ 000) to RM 24.13 in 1QFY19 from RM 23.61 in 4QFY18 has helped to allay some concerns on overcapacity and rising production cost, as Hartalega was still able to raise average selling price (ASP) and continuing to pass on higher cost.
“We expect Hartalega to continue to raise its ASP in 2QFY19, as raw material prices continue to be on the rise, although the price hike could be less steep due to the recent weakening of ringgit,” the research firm said.
“Glove manufacturers (including Hartalega) will be able to pass on the higher cost with the current robust demand, in our view.”
As Hartalega continues to operate at more than 90 per cent utilisation rate, Affin Hwang believed that the new Plant 5 which was recently commissioned, will be earnings-accretive.
“The new lines can also help to reduce the current high utilisation rate of its current lines, as operating at above 90 per cent for an extended period of time could lead to longer downtime for maintenance.
“The new capacity from Plant 5 will add around 4.7 billion capacity or 14 per cent of its current capacity by year-end.”
“Plant 6 and 7 will likely be commissioned in the first half of 2019 (1H19) and 2H19 respectively.”
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) also expected contributions from Plant 5 to drive FY19 earnings growth.
Kenanga Research noted that Plant 5 is expected to boost additional capacity by 16 per cent to 33.1 billion pieces per annum.
“All in, Plant 5, 6 and 7 will add a total capacity of 12.1 billion pieces, raising installed capacity by 43 per cent to 40.6 billion pieces per annum,” the research arm said.