Hartalega adopts cost optimisation over natural gas tariff hike

By SULHI KHALID / Graphic By TMR

IN LIGHT of the rising operational cost and higher natural gas tariff rates, Hartalega Holdings Bhd is shifting focus on cost optimisation as part of its effort to mitigate potential margin pressures.

Its MD Kuan Mun Leong said the glove maker will intensify investments into Industry 4.0 and the Internet of Things technologies to implement greater automation and artificial intelligence solutions.

“This will enable us to further reduce dependency on manual labour and improve operational effectiveness,” Leong said in a statement yesterday.

Hartalega’s net profit for the first quarter ended June 30, 2019, declined 24% year-on-year (YoY) to RM94 million due higher packaging, electricity, heat and labour costs. Revenue dropped 6.4% YoY to RM640 million on lower sales volume during the period.

“Our results for this quarter are within our expectations. Due to ongoing commissioning of new capacity within the industry, capacity growth is currently ahead of demand growth,” Leong added.

Moving forward, Hartalega will continue with its Next Generation Integrated Glove Manufacturing Complex capacity expansion plans, the company’s exchange filing yesterday noted.

The construction of Plant 6 is currently under way and Plant 7 is also in the pipeline.

With progressive commissioning of Plant 6 and 7, the group’s annual installed capacity is set to increase from the current 36.6 billion to 44.7 billion pieces per annum by its financial year 2022, according to Leong.

The group is also banking on its world-first antimicrobial glove, which has seen growing market acceptance, securing orders from 20 countries since its inception in 2018.

Its share price closed 19 sen higher yesterday to RM5.05, valuing the company at RM17 billion.

Hartalega is currently the largest producer of nitrile gloves in the world, producing 30 billion gloves annually and exporting to over 60 countries across five continents, namely the Americas, Asia, Europe, Australia and Africa.

Previously, Gas Malaysia Bhd raised the natural gas tariff for the non-power sector in Peninsular Malaysia to RM31.92 per one million British thermal units (MMBtu) from RM30.90 per MMBtu, effective from July 1 to Dec 31, 2018.

Natural gas makes up about 10% to 15% of manufacturers’ total operating costs.

Kenanga Investment Bank Bhd analyst Raymond Choo highlighted three cost optimisation methods embarked by Hartalega — slowed new capacity expansion, cost reduction initiatives including automation and intensified sales efforts to penetrate emerging economies.

Kenanga has placed a target price of RM5.85 on Hartalega, backed by the group’s promising outlook.