Hartalega does not foresee sharp earnings fall after FY22

Executive chairman Kuan Kam Hon (centre), chief executive officer Kuan Mun Leong (right), and non-independent executive director Kuan Mun Keng (left) at Hartalega Holdings Bhd's 14th annual general meeting yesterday.

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KUALA LUMPUR (Sept 16): Hartalega Holdings Bhd, which expects an additional demand for 120 billion pieces of disposable gloves in the next three years, does not foresee any sharp earnings contraction after 2021 as some analysts anticipate.

"The analysts are correct [on the earnings forecasts]. But when it comes to the third year, after 2021, they start to give us [earnings] contraction... and [it's] a very sharp contraction.

"I mean this is an opinion, right? They can be right at the end of the day. I do not know. But by my guidance, what the analysts have said cannot be right,” Hartalega's executive chairman Kuan Kam Hon told the media after the group's annual general meeting yesterday when asked to comment on analysts' earnings forecasts.

"We are on the ground. We have been in the business for the last 30 years and analysts are not able to see what we are able to see," he added.

The market consensus estimates the net profit of the world's largest nitrile glove maker to swell to RM1.8 billion for the financial year ending March 31, 2021 (FY21) and to grow further to RM1.918 billion in FY22 before dropping to RM1.219 billion in FY23, according to Bloomberg.

Hartalega made RM434.7 million net profit in FY20.

For its first financial quarter ended June 30, 2020 (1QFY21), Hartalega's net profit jumped 134% to a record RM219.72 million compared with RM94.06 million a year ago. Quarterly revenue soared 44% to RM920.09 million from RM640.1 million, as it sold more rubber gloves with higher average selling prices.

The supply of disposable gloves will not be able to meet their demand in the next three years, said Kam Hon.

"Right now, there is an enormous shortage [due to the pandemic]. We do not even know whether we (the industry) have enough to meet the demand for 120 billion more pieces of gloves in the next three years," he said.

"Glove dipping is a long process. The expansion or transition period [to meet the demand] is at least three years," he said, adding that the group's annual capacity now stands at 38 billion pieces.

"Even in the fourth year, if you have extra [rubber gloves], they'd go into the inventory building. When you have a supply shortage, you are not able to build up inventory," he explained.

Kam Hon said Hartalega is now expanding its capacity by about 20% per year, and that this is a pace slightly above the industry's organic growth.

According to Hartalega's chief executive officer Kuan Mun Leong, the demand for gloves for developed countries has increased by 30% since the outbreak, whereas for developing countries — where the gloves per capita consumption used to be very low — the usage has more than doubled.

Mun Leong said the group is accelerating its capacity expansion.

"To date, we have commissioned 10 out of 12 production lines for Plant 6, while for Plant 7, the first production line is on track for completion by October 2020.

"On top of this, Hartalega is further scaling up our expansion plans with the acquisition of land adjacent to Plant 7 of the NGC (Next Generation Integrated Glove Manufacturing Complex).

"This will see the construction of four additional plants, namely Plants 8 to 11, which will progress expeditiously, adding an installed capacity of another 19 billion pieces per annum once completed," Mun Leong added.

Going beyond this, Mun Leong said Hartalega's long-term capacity growth will be propelled by the next expansion of NGC, or NGC 2.0. The group is aiming to commission its first production line under NGC 2.0 by the first half of 2022.

"Once fully completed by 2027, these expansion plans will see the group's total annual installed capacity increase to 95 billion pieces per annum," Mun Leong said.

Tan Choe Choe & Kathy Fong