HARTALEGA Holdings Bhd which yesterday stole some limelight off Top Glove Corp Bhd with its founder and executive chairman emulating the latter’s private acquisition of its own shares, has signalled that it is no longer an average selling price (ASP) laggard among the Big Four glove makers.
In fact, the most pricey glove counter on Bursa Malaysia expects its glove ASPs to rise by 50% quarter-on-quarter (qoq) in 3Q FY3/2021F and by at least 40% qoq in 4Q FY3/2021F, according to CGS-CIMB Research.
“Hartalega is also of the view that (its) ASPs could still increase from 1Q FY3/2022F given the current severe shortage in global glove supply (all capacity fully allocated up to end-CY2021F),” commented analyst Walter Aw in a company update.
“In our view, (even then) Hartalega’s ASPs will still lag behind its peers in 2Q FY3/2022F.”
Despite the glove maker’s bullishness, CGS-CIMB Research has trimmed Hartalega’s target price by 21.4% to RM19.50 (from RM24.80 previously) although it reiterated an “add” rating on the company.
“Note that we peg Hartalega to its current five-year mean despite its robust earnings prospect as we acknowledge that FY2022/2023F could potentially be a one-off exceptional period,” rationalised the research house.
“We still like Hartalega for its (i) industry-leading technology in nitrile gloves; (ii) beneficiary of strong global glove demand owing to COVID19; and (iii) higher-than-average margins in the sector (over past five years).”
Moving forward, Hartalega is optimistic of that there will be a global shortage of 120 billion pieces of gloves annually for at least the next two years due to higher demand from both the healthcare and non-healthcare sectors owing to COVID-19.
Despite aggressive capacity expansion plans from both existing and new glove makers, CGS-CIMB Research opined that it will be unlikely to fully offset demand given difficulties in:
- Securing raw material supply (nitrile butadiene rubber);
- Having sufficient workforce (with the ongoing ban on recruitment of foreign workers);
- Higher costs to comply with the Workers’ Minimum Standards of Housing and Amenities Act 1990 (Act 446); and
- Construction delays due to the ongoing pandemic.
To re-cap, Hartalega closed eight production lines (0.5% of total output) on Dec 15 following the detection of 37 COVID-19 cases (0.4% positive rate) among its 8,737 workers during its precautionary mass testing.
“In our view, the impact was minimal as all eight lines resumed production on Dec 29. Its ongoing COVID-19 prevention measures (costing RM2 mil monthly) will see circa 10% of its workforce being tested weekly,” added CGS-CIMB Research. – Jan 12, 2021
