Hartalega to have robust sales volume growth from higher capacity

KUCHING: Hartalega Holdings Bhd ( Hartalega) has been projected to have robust sales volume growth going forward, on the back of higher capacity.

According to AmInvestment Bank Bhd (AmInvestment Bank), Hartalega’s expansion plans are on track with the commissioning of its latest NGC plant, Plant 5 and the beginning stages of constructing Plant 6.

“Both Plant 5 and Plant 6 are expected to increase capacity by 4.5 billion pieces per annum each,” the research firm said.

“With the latest commissioning of the second line of Plant 5 in September 2018, the current total capacity is at 31.7 billion pieces per annum.

“Plant 7 is in the initial planning stages, which would raise capacity by 2.6 billion pieces per annum.”

The research firm thus expected total capacity to grow by 20 per cent to 43.1 billion by financial year 2021 forecast ( FY21F).

“Moving forward, we expect robust sales volume growth from the higher capacity,” AmInvestment Bank projected.

“However, the topline growth will be slightly offset by some downward pressure on average selling price (ASP) as Top Glove Corporation Bhd and Kossan Rubber Industries Bhd will be introducing an additional capacity of circa 10 billion pieces per annum each by CY20.”

According to AmInvestment Bank, nitrile latex, which makes up around 50 per cent of Hartalega’s total production cost, has been rising since FY18.

Based on the research firm’s estimates, every one per cent increase in nitrile latex price will reduce earnings by 0.3 per cent.

The research firm noted that Hartalega’s earnings before interest, tax, depreciation and amortisation ( EBITDA) margin has been affected by the higher nitrile cost as ref lected in the decrease of 1.3 percentage points ( ppts) to 24.5 per cent in the first quarter of FY19 (1QFY19), compared to 25.8 per cent in FY18.

Overall, AmInvestment Bank liked Hartalega for the group’s capacity expansion and new product launch.

It also noted that Hartalega introduced the anti- microbial gloves in May 2018, which is expected to contribute circa 10 per cent to the company’s topline.