Hartalega to see more realistic growth

Hartalega Holdings Bhd is expected to see a more realistic growth in net profit and revenue in the next quarter, as the glovemaker has reached a stage where its financial results could no longer be compared to the previous low base, said its executive chairman and managing director, Kuan Kam Hon.

“We have set a conservative internal target of achieving 15% to 25% growth in bottom line for FY11 ending March 31 (FY11), as cost of production increases and with stiffer competition with more players moving into the nitrile glove segment,” Kuan said after the company’s AGM and EGM here yesterday.

He said the company had reached the half-billion-ringgit mark in turnover. “Coupled with massive capacity expansion in the industry, glovemakers would likely see margin contraction with growth in supply outstripping demand,” he added.

However, Kuan said Hartalega’s first-quarter results had shown that it could maintain the 25% net profit margin achieved in FY10.

In the first quarter ended June 30, 2010 (1QFY11), Hartalega posted a 57.2% jump in net profit to RM41.5 million from RM26.4 million a year earlier, while revenue grew 35.6% to RM170 million versus RM125.3 million.

Earnings before interest, tax, depreciation and amortisation (Ebitda) margin was also higher at 31.6% from 26.7%. Earnings per share came to 17.1 sen.

Kuan. Photo by Mohd Izwan Mohd Nazam

Hartalega started off as a manufacturer of premium latex gloves in 1988, but from 2004, it focused more on higher quality nitrile gloves. It has a production mix of 80% nitrile and 20% natural rubber gloves.

Around 75% of the company’s production is exported to the US. Other export markets include Japan and Germany. Kuan said Hartalega envisaged India and China to be the group’s potential markets. Last year, the company supplied more than 10% of the global nitrile glove market.

The company is working on completing Plant 5, its fifth manufacturing facility in Batang Berjuntai, Selangor with an investment of about RM100 million.

Plant 5, which will be dedicated to the production of nitrile gloves, could potentially add another RM300 million in revenue to the group annually, based on the current average selling price. 

“Another RM40 million investment to upgrade the existing 10 production lines at its first plant with six of the high-capacity production lines is expected to start this year. The expansion will see production capacity doubled to 1.4 billion pieces from 700 million currently,” said Kuan.

Once all the expansion is completed, Hartalega would see total glove production capacity reaching 9.6 billion pieces by FY12.

Hartalega yesterday received shareholders’ approval for its proposed one-for-two bonus issue of 121.15 million new shares. The company is sitting on a healthy cash pile of RM43 million, or 18 sen per share, that gives it flexibility to fund expansion, or pay shareholders higher dividends.

While it had no dividend policy, Kuan said Hartalega, which has been in net cash position since FY10, would maintain a 30%-35% dividend payout from its annual net profit in the coming year. It paid 20 sen in dividends in FY10, or 33.8% of its earnings per share of 59.1 sen.

The company’s shares have seen a strong run since the beginning of the year, in tandem with other major glovemakers. The counter closed three sen lower yesterday at RM7.96, gaining 27.97% year-to-date.



Written by Tony C H Goh
This article appeared in The Edge Financial Daily, August 19, 2010.