Summary

• Hartalega’s 1QFY21 net profit jumped 133.6% Y.o.Y to RM219.7m owing to the combination of higher sales volumes by 38.5% YoY and higher average selling prices (ASPs). Revenue for the quarter rose 43.7% Y.o.Y to RM920.1m.

• The reported earnings accounted for 19.1% our estimates of RM1.15bn and 16.4% against consensus forecast of RM1.34bn. Although the reported figures made up to less than a quarter of our forecast, we reckon that earnings is in line on the expectations that earnings growth to accelerate in subsequent quarters amid the rising ASPs and firm demand over the foreseeable future.

• To fulfill the heighten demand; all 12 lines under Plant 6 of NGC is expect to be fully operational by end-2020, whilst the construction of Plant 7 of the NGC is slated to commence thereafter. Upon completion in 2022, the total annual installed capacity would increase to 44.00bn pieces. Beyond that, recent acquisition of 95.0-ac. of land will house NGC 2.0 comprises 82 production lines with total installed capacity of 32.00bn pieces, bringing total production capacity to 76.00bn pieces per annum.

• The average plant utilisation rate has improved to above 85% in FY20 which we see the uptick to continue to hit beyond 90% for existing capacities. Going forward, the rising number of infections from Covid-19 (2nd wave in several countries across the globe) will keep demand for healthcare related products at elevated level and we see Hartalega will continue to capitalise on the pandemic.

• Meanwhile, MARGMA expects the Malaysian rubber glove exports to jump to 220.00bn pieces of gloves valued at RM21.80bn in 2020 which accounts to about two-third of the global supply. Already 1Q2020 saw 55.00bn pieces of gloves sold.

• We expect the imposition of windfall tax on glovemakers companies to not materialise as medical gloves are deemed as one of the essential products. We think that the imposition of windfall tax may bring delay to the glovemakers expansion plan, which poses a threat in delay of supply for current orders

Source: Mplus Research - 5 Aug 2020