• Hartalega confirmed 35 employees tested Covid-19 positive from their initiated Precautionary Mass Testing (PMT) of 8,772 employees.
• Currently, Hartalega has voluntarily closed 8 production lines for a month, equivalent to a capacity loss of less than 0.5% of total annual output. The impact is minimal as this constitutes <1% of our FY21 earnings forecast.
• We make no adjustment to our forecast due to its insignificant impact on earnings and pending further details from upcoming concall with management.

Hartalega confirmed 35 employees tested positive for Covid-19

Hartalega initiated a Precautionary Mass Testing (PMT) in phases from the 7th-10th December. The PMT covers all employees including canteen & grocer shop operators within Hartalega premises from all locations (NGC, Bestari Jaya, Petaling Jaya & Sri Damansara office). Out of a total of 8,772 tests, 35 positive cases were confirmed with 0.4% positive rate (20 from Bestari Jaya, 15 from NGC).

Action taken by Hartalega

All the positive cases have been transferred to hospitals as per Ministry of Health’s instruction and a thorough disinfection of all areas attended by the affected individuals have also been carried out by a third-party professional provider. Hartalega has also placed workers that have direct contact with those who are infected under quarantine for 14 days and will ensure they undergo subsequent testing as per SOPs before being permitted to return to work. Additionally, in order to further enhance the effectiveness of existing measures, the company is looking into implementing Scheduled RTK testing for all factory workers moving forward.

Minimal impact on earnings

Hartalega hastaken precautionary action by closing 8 production lines for a month, equivalent to a capacity loss of less than 0.5% of total annual output. On the assumption that the number of infected workers do not further increase substantially and that there are no extension provided on the duration of production lines closure, impact to our FY21f earnings would be minimal <1% and therefore insignificant at the moment.

Maintain BUY, TP RM23.80

We make no adjustment to our forecast at this point due to its insignificant impact on earnings and pending further details from upcoming concall with management on 15th December. Maintain TP of RM23.80 based on 30x PER pegged on FY22 EPS.

Source: BIMB Securities Research - 15 Dec 2020