Hartalega bullish on FY18

This article first appeared in The Edge Financial Daily, on August 23, 2017.

Mun Leong: Though we have a master plan to complete the NGC by 2021, we are always mindful of the supply and demand situation. Photo by Suhaimi Yusuf

Hartalega Holdings Bhd will allocate between RM200 million and RM300 million per plant, setting up its remaining three plants at its Next Generation Integrated Glove Manufacturing Complex (NGC), expected to be completed by 2021.

“For plant 4, we have started the commissioning of the first [production] line this month. Subsequently, every month, we’ll have a production line commissioned for plant 4 until the 12th line. Plant 4 will give us an additional capacity of 4.7 billion pieces [of gloves],” Hartalega managing director Kuan Mun Leong told the media after the company’s annual general meeting yesterday.

He said construction work for plant 5 began in July this year, with the first production line expected to start operation by April next year and all of its 12 production lines to be fully commissioned within a year.

“Hopefully, by April 2019, all 12 lines at Plant 5 will be running. The RM2.2 billion NGC comprises six manufacturing plants. To date, we have spent RM1.2 billion on NGC,” Mun Leong added.

The group currently has 37 production lines at NGC, and 42 lines in Bestari Jaya. According to Mun Leong, these lines are now running at full capacity.

Despite the prevailing optimism about the glove industry’s prospects, the construction of plant 6 will only kick off based on supply and demand in the market.

“Though we have a master plan to complete the NGC by 2021, we are always mindful of the supply and demand situation, of which plant 6 really depends on. We don’t want to up [the] capacity expansion — this is overly aggressive — and cause the supply to run ahead of demand.”

On oversupply concerns, Mun Leong said the country’s four biggest glove manufacturers’ expansion plans in two years — which equate to an additional capacity of 28 billion pieces of gloves in two years — remain below the global market growth forecast of an increase by 41 billion pieces of gloves in the same period.

“If you look at it, it’s still very much below global growth. This is a very healthy way of expanding our capacity and business. Individually, the companies’ expansion is sizeable, but supply and demand in future are still very healthy.”

Meanwhile, partly thanks to increased efficiency and capacity, Hartalega’s net profit for the first quarter ended June 30, 2017 (1QFY18) surged 71.5% to RM96.4 million from RM56.2 million a year ago, as revenue expanded 49.6% to RM601 million from RM401.8 million.

This comes after the group’s improved FY17, where net profit grew 9.9% year-on-year (y-o-y) to RM283.4 million, with revenue climbing 21.3% y-o-y to RM1.82 billion.

Moving forward, Hartalega executive chairman Kuan Kam Hon expects the group’s revenue and net profit to continue to grow in FY18, due to continued capacity expansion at NGC, on top of the various tax benefits that the group enjoys. “Overall, we are bullish on FY18. We will continue to grow quarter-on-quarter,” said Kam Hon.

Hartalega shares slipped 2% to RM6.90 yesterday, with a market capitalisation of RM11.3 billion.

Source: http://www.theedgemarkets.com/article/hartalega-bullish-fy18