A temporary productivity setback looms for Hartalega Holdings Bhd following the recent detection of COVID-19 infection within its workforce.
Malacca Securities Research reckoned that cautiousness would prevail as investors continue to monitor developments as to how the company’s operations would be affected.
“As several production lines are temporary halted for disinfection and sanitisation works to be carried out, capacity loss at current juncture is expected to be miniscule (<1.0% of annual production output),” noted analyst Kenneth Leong in a company update.
Yesterday, Hartalega confirmed that 35 of its employees tested positive for COVID-19, of which 20 of them are at located its Bestari Jaya operations and 15 at the Next Generation Integrated Glove Manufacturing Complex (NGC) in Sepang.
The affected employees are currently under medical care at a government healthcare facility, while all primary contacts over the past 14 days have been identified and placed under quarantine and will undergo subsequent testing before being permitted to return to work.
Moving forward, Leong expects the pent-up demand trend for glove stocks to taper in 2022 with the availability of COVID-19 vaccine at the doorstep.
“This coupled with the impending new entrants of gloves manufacturers and expansion of existing capacities will subsequently bring the meteoric rise of gloves average selling prices (ASPs) to an inflection point,” projected Leong.
“Nevertheless, we reckon that despite the retracement in ASPs of gloves, the pricing will still be higher than the pre-COVID-19 levels.”
As such, Malacca Securities Research tweaked its earnings forecast on Hartalega lower by 0.7% and 4.9% to RM1.85 bil and RM2.01 bil for FY2021F and FY2022F respectively to account for the loss of production capacity, slightly lower ASPs and stronger ringgit against the US dollar.
Although it maintained its “buy” rating on the stock, the research house slashed its target price to RM15.40 (previously RM23.34) to reflect the gradual decline of ASPs post-FY2022F.
At 9.20am, Hartalega was up 18 sen or 1.51% to RM12.14 with 586,100 shares traded, thus valuing the company at RM41.61 bil. – Dec 15, 2020
