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Thursday, May 9, 2019

Better days ahead for Hartalega on higher demand

CORPORATE NEWS
Thursday, 9 May 2019
by royce tan

Kenanga Research said the oversupply concerns affecting the rubber glove sector appeared to be overplayed and that this would only be a temporary rough patch.

PETALING JAYA: Glove maker Hartalega Holdings Bhd
image: https://cdn.thestar.com.my/Themes/img/chart.png will see better quarters ahead with the recovery in demand and average selling prices (ASPs) as well as the weakening of the ringgit against the US dollar, a research house said.

Kenanga Research said the oversupply concerns affecting the rubber glove sector appeared to be overplayed and that this would only be a temporary rough patch.

It added that the frantic pace of capacity expansion in the sector resulted in a mild excess supply situation for rubber gloves, which led to ASP compressions and flattish or lower profits over the last two quarters.

Hartalega, which posted it fourth-quarter results for the period ended March 31 on Tuesday, saw a drop in net profit from RM116.9mil to RM91.4mil. Revenue, however, increased to RM683.89mil from RM616.84mil.

Kenanga said rubber gloves players became aware of the intense competition since four months ago and have begun slowing down new capacity expansions, implementing more measures to maintain margins and boosting their efforts in sales to penetrate emerging economies.

“Theoretically, the ASP pressure in the sector should fully sort itself out within another quarter. Hence, we expect Hartalega’s margins to recover and earnings to improve.

“Interestingly, industry ASP pressure is well contained, ranging between US$21 and US$23 per 1,000 pieces as compared to the previous downcycle in 2016 ranging between US$19 and US$21 per 1,000 pieces,” it said in a research note.

Kenanga has maintained its “outperform” call on Hartalega with a target price of RM5.85 and said that it liked the counter for its highly automated production process model which is improving, making the company far ahead of its peers in terms of better margins, solid improvement in production capacity and reduction in costs,

“We also like Hartalega for its superior quality nitrile gloves through product innovation and its nitrile gloves segment, which is booming,” it said.

Read more at https://www.thestar.com.my/business/business-news/2019/05/09/better-days-ahead-for-hartalega-on-higher-demand/#IwqQiGlLGK8bCkRV.99

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