• Hartalega halted all its glove operations located at Bestari Jaya and Sepang in compliance with the EMCO order.

• We reduced our FY22f earnings by c.7% to reflect the disruption in production for 2 weeks and lower utilisation rate due to longer than expected National Recovery Plan Phase 1.

• Maintain BUY but lower TP of RM9.00 pegged on PER 24x and rolled over valuation to CY23F EPS to reflect the normalized earnings.

Gloves not considered as essential services during current EMCO

According to media news, Hartalega informed that it has halted all its glove operations located in Bestari Jaya and Sepang, in compliance with the EMCO order until 16th July. The Miti approval letter earlier has been revoked as rubber glove manfacturing is not under the essential services list for this EMCO by Majlis Keselamatan Negara (MKN). Based on our estimate, Hartalega’s earnings will be impacted by c.4% every 2 weeks of shutdown of its operations.

Gloves ASPs have peaked

Hartalega ASPs have peaked in its 1HCY21 and we do not expect the current downtrend in ASP to rebound significantly if the closure is for 2 weeks only. Hence, we reiterate our opinion that Hartalega’s ASP will gradually decline in 2HCY21 onwards as glove buying urgency is anticipated to fade due to increasing percentage of global vaccinations and rising competition globally from existing & newcomers capacity. However, the quantum of ASP decline is expected to be lower compare to its peers (e.g. Supermax & Top glove) noting that it was a laggard at raising ASPs (c.10% discount to its peers). Long term gloves consumption remains solid on the back of structural change in higher glove usage due to greater hygiene awareness.

Maintain BUY, new TP RM9.00

We cut our FY22 earnings by 7% to reflect the disruption in production for 2 weeks and lower utilisation rate due to longer than expected National Recovery Plan Phase 1 (operate at 60% workforce capacity). Hence, we have derived a lower new TP of RM9.00, pegged on PER 24x (Hartalega’s 10-years historical forward average) and rolled over valuation to CY23F EPS to reflect the normalized earnings moving forwards. Maintain BUY with upside 27% and dividend yield of 7% FY22f. We continue to like Hartalega for its leadership position in nitrile gloves, strong management and highly focus on ESG efforts.

Source: BIMB Securities Research - 7 Jul 2021