KUALA LUMPUR, April 17 ― Nitrile gloves manufacturer Hartalega Holdings Bhd is set to have a bumper year amid higher volume sales and average selling prices as well as longer delivery lead times amid the Covid-19 pandemic.
The Malaysian Rubber Glove Manufacturers Association has forecast a 20 per cent demand growth to 230 billion pieces in 2020. Malaysia accounts for 65 per cent of the global supply.
“Longer delivery lead times are indicating that demand will outstrip supply at least over the medium term,” Kenanga Research analyst Raymond Choo Ping Khoon said.
Delivery lead times have risen to an average of between 80 to 100 days, up from 40 to 50 days normally.
“Signs of demand outstripping supply could potentially lead to higher average selling prices (ASPs) coupled with incremental cost and higher operating expenses. Looking at the stable raw material prices, ceteris paribus, hikes in ASPs are expected to lead to margins expansion,” he said in his research report.
Choo said it is understood that industry players generally have raised prices by 3-5 per cent.
Elaborating further, he said Hartalega’s first four lines of Plant 6 (installed capacity of 4.7 billion pieces) have commenced commercial operations and the remaining eight lines are expected to be gradually ramped up.
Plant 7 is expected to be commissioned by early 2021, and will focus on small orders as well as specialty products with an installed capacity of 3.4 billion pieces. All in, Plants 5, 6 and 7 will add a total capacity of 12.1 billion pieces, raising installed capacity to 43.7 billion pieces per annum, he said.
Taking the cue from its third quarter that ended on Dec 31, 2019 with a net profit of RM121 million, due to the shorter working month in February and only partial commercial production from two lines in Plant 6, “we forecast its fourth quarter (ending March 31, 2020) core PATAMI (profit after tax and minority interest) of between RM123 million and RM125 million.”
This, he said, “would bring the the full-year estimation of PATAMI to between RM442 million and RM444 million or 91 per cent - 98 per cent of our/consensus forecasts which is below our expectations.”
Year to date, the stock is up 40 per cent, and looking at the previous up-cycle, when the stock rose 200 per cent, indicates potential further upside, said Choo.
Kenanga Research, he said, has switched its valuation to calendar year from financial year.
The target price is now raised to RM9.30 from RM8.00 based on 49.5x calendar year 2021 estimated earnings per share, from 48x previously.
Its share was up 15 sen at RM7.78 as at RM10.38 am, with 1.42 million shares changing hands. ― Bernama
