Summary

• We attended a virtual briefing hosted by Hartalega Holdings Bhd (Hartalega) on last Friday pertaining to the social compliance matters in view of the heated topic over the mistreatment of foreign workers in Malaysia, particularly in the manufacturing industry. Already, US Customs and Border Protection (CBP) labour rights activist Andy Hall has petitioned the agency to investigate on Hartalega as well as another public listed glovemaker in Malaysia. We came away feeling re-assured on Hartalega’s strong compliance with all workers hostels adhering to the Act 446. Employees’ Minimum Standards of Housing, accommodations and amenities.

• We gather that Hartalega implements 60 hours of work per week vs. the general industry standard practices of 72 hours of work per week. The shorter duration of working hours per week is similar to those in the manufacturing line under the electronics industry. To underline the importance of workers welfare, workers are provided with one rest day per week.

• Back in 2019, Hartalega has embarked into the program of reimbursement of migrant workers whom paid recruitment fees. A total of 49% of 4,153 migrant workers whom were hired before the implementation of zero-cost recruitment from 1st April 2019 were interviewed in May 2020. In August 2020, Hartalega became the first glove company to self-initiate reimbursement of recruitment fees. By April 2021, more than 1/3 of full reimbursement has been completed and the reimbursement process will be accelerated, target for completion by mid-June 2021. The reimbursement would amount up to RM40.0m.

• Meanwhile, reimbursement of recruitment fees to former workers will begin in June 2021, which entails absconded workers, repatriated workers, workers on leave and/or stranded in their home countries due to the Covid-19 impact and workers whom failed medical screening and returned home. We gather that 82 former workers have been contacted, to-date.

• We note that the reimbursement program is validated by independent third-party organisation with proven track record in social compliance and recruitment fee remediation to conduct interviews with affected workers. The reimbursement amount is touted to be comparable against other factories that are currently performing similar repayments to workers as well as slightly higher than the cross sectorial data.

• Moving forward, Next Generation Complex (NGC) 1.5 that will house 4 plants (plant 8-11) will be equipped with upgraded workers’ hostel. Although the CAPEX spent may be slightly higher, we laud the move in view of the stricter social distancing compliance amid the Covid-19 pandemic.

• Consequently, we reinforced our view that Hartalega is well positioned as the leader among 92 companies in the health care equipment & supplies industry, boasting MSCI ESG rating of ‘AA’. Meanwhile, Hartalega is rated 3-star (one rank below the top) under the ESG Ratings of PLCs assessed by FTSE Russell in accordance with FTSE Russell ESG Ratings Methodology Stock Code in the last review during December 2020. We believe that the favourable ratings will solidify Hartalega’s reputation and ensures long-term business continuity as well as returns to shareholders

Source: Mplus Research - 31 May 2021