After several consecutive quarters of losses, Hartalega Holdings Berhad (HARTA, 5168), one of Malaysia's largest rubber glove manufacturers, has finally returned to profitability in the second quarter of the fiscal year 2024.

Without further ado, let's delve into the latest quarterly performance announced by HARTA and explore how the company's management perceives the future prospects of its glove business.

Revenue Comparison (YoY -22.66%, QoQ +2.73%)

As of September 30, 2023, HARTA's revenue decreased by approximately RM132.47 million or 22.66% year-on-year to around RM452.09 million. This decline was primarily attributed to lower average selling prices (ASP) and reduced sales volume.

However, compared to the previous quarter, the company's revenue for this quarter increased by approximately RM12.05 million or 2.73%. Management attributes this improvement to an 8.00% increase in glove sales volume. Additionally, HARTA's overall factory utilization rate rose from around 41.00% in the previous quarter to 44.00%, reflecting a gradual increase in market demand for gloves.

Net Profit Comparison (YoY -2.25%, QoQ +152.79%)

Given the decline in glove sales volume and ASP, the company recorded a net profit of approximately RM27.70 million, a slight decrease of about RM0.64 million or 2.25% year-on-year. However, the company's pre-tax profit margin increased by approximately 1.50% year-on-year, rising from 6.40% in Q2FY2023 to 7.9% in Q2FY2024. This increase is primarily attributed to gains in foreign exchange and increased interest income.

In contrast to the net loss of approximately RM52.47 million in the previous quarter, the company turned a profit this quarter, with a significant increase in net profit of RM80.17 million or 152.79%. This turnaround can be attributed to the absence of the approximately RM47.00 million severance pay provision made in the previous quarter (Q1 FY2024). Additionally, the outstanding profit performance this quarter is also credited to the decrease in raw material costs and reduced operating expenses.

It is worth noting that HARTA remains a net cash company, holding a substantial cash balance of approximately RM1,638.13 million this quarter.

Outlook

As the global glove supply remains surplus, leading to intense market competition, the average selling prices of gloves are expected to continue facing downward pressure. Consequently, the glove industry continues to confront challenges.

In response, HARTA has initiated a five-year strategic plan, including the strategic closure of the Bestari Jaya facility and the integration of manufacturing operations into the more efficient Next Generation Integrated Glove Manufacturing Complex (NGC). This strategic move aims to further enhance operational efficiency and reduce costs, positioning the company for future recovery in the glove market.

Moreover, during the post-pandemic period, heightened awareness of hygiene and health is expected to drive an increase in glove consumption. Overall, the management maintains an optimistic outlook for the long-term growth potential of the glove industry.

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Disclaimer: The above is purely for educational purposes and reflects personal opinions. It does not constitute any buying or selling recommendations.

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