Summary

• Hartalega’s 1QFY22 net profit soared 928.3% YoY to RM2.26bn on the combination of higher average selling price (ASP) and higher sales volume. Revenue for the quarter jumped 324.2% YoY to RM3.90bn.

• The reported earnings came above expectations at 64.5% of our estimates of RM3.51bn, whilst it amounted to 59.0% against consensus forecast of RM3.83bn. The stronger-than-expected performance was attributed to the elevated ASPs and stronger-than-expected sales volume, despite the logistic issues in March 2021.

• To-date, 8 out of 10 lines under Plant 7 of NGC have commenced operations (6 lines were under operations in the previous quarter). We note that sales delivery for the quarter was impacted to the logistical issues but was largely mitigated by the stronger sales orders amid the pent-up demand.

• We were guided that the ASPs for the quarter under review appears to have hit infection point and tapering is expected to see double digit decline in subsequent quarters. Albeit that, we project the demand to remain resilient amid the rising healthcare awareness, grow at approximately 10.0%-15.0% p.a.

• With 60% workforce policy in place during MCO 3.0, production utilisation has now come off from the peak for all local gloves manufacturers. Due to the capacity constraints in Malaysia, we note that purchasers have turned their attention to China producers to match their demand.

• Moving forward, remaining 2 surgical lines under Plant 7 will commission progressively in subsequent quarters which will increase annual installed capacity to 44.0bn pieces by end-2021. Beyond that, Plant 8 which is under NGC 1.5 expected to commence operations by end-2021 and upon progressive completion, it will boost annual production capacity to by additional 19.0bn pieces to 63.0bn pieces.

• Meanwhile, over 90.0% of Hartalega employees including migrant workers have completed the first dose of vaccination, with the second dose targeted for completion by end-August 2021.

Source: Mplus Research - 4 Aug 2021