With a new wave of cases emerging, this surge in demand growth is expected to continue in the coming years, says CEO

by SHAHEERA AZNAM SHAH/ pic by TMR FILE

HARTALEGA Holdings Bhd’s management’s guidance on demand and pricing outlook for gloves and investors interest in the bonus issue of shares by Top Glove Corp Bhd and Supermax Corp Bhd indicated the price rally in the healthcare space remains well backed by liquidity and earnings expectations.

Hartalega posted a 134% year-on-year (YoY) rise in net profit to RM219.72 million or earnings per share of 6.49 sen in its first quarter ended June 2020 (1Q21), on higher sales volume coupled with an increased average selling price.

Its revenue for the quarter rose 43.74% YoY to RM920.09 million. The profit-taking in glovemakers seen in the morning session of the market was reversed by Hartalega’s strong financial numbers and guidance from the glovemaker’s substantial shareholder, CEO Kuan Mun Leong (picture) expectation of demand for gloves to remain strong for years and the pricing power producers have now be sustained into the coming quarters.

“Market demand was exceptionally strong during the quarter due to the unfortunate Covid-19 pandemic. With a new wave of cases emerging in the US, Latin America and India, along with upticks in other countries across the world, this surge in demand growth is expected to continue in the coming years.

“Due to the global shortage of gloves, average selling prices are expected to see upward revisions in the coming quarters, in line with the prevailing market price,” Kuan stated in a release yesterday.

Hartalega fell to a low of RM17.54 on the results before investor buying saw its rise and close 56 sen or 2.7% lower at RM19.94 on Bursa Malaysia.

Investors also brought back into Top Glove which rose RM1.48 or 5.5% to close at a historic high of RM28.36 while Supermax rose RM3.08 or 15.9% to RM22.42 a new high as well.

Money also flowed into the smaller and laggard healthcare thematic counters like Karex Bhd, HLT Global Bhd, ES Ceramics Technology Bhd, Adventa Bhd, Notion Vtec Bhd and Careplus Group Bhd with some of them going limit up or posting double-digit gains in percentage.

The heightened interest trading saw volume on the local exchange hit a new historic high of 15.62 billion securities traded yesterday valued at RM10.45 billion.

“The valuation of glovemakers is now driven by higher earnings expectations for the quarter ahead despite all trading at very high price-earnings multiples. The bonus issues by Top Glove and Supermax are keeping investors invested in the counters and thus take their share prices even higher,” said a trader at a local brokerage.

Any weakness in the share prices of glovemakers is seen as an opportunity to buy, he added.

Kuan said the lower raw material and energy costs and the group’s continuous cost optimisation initiatives have helped the group increase its profit in the quarter.

He is expecting a spike in glove demand due to the increased glove usage from the emerging markets with low glove consumption per capita as well as heightened hygiene awareness.

“The overall projected demand growth is expected to outstrip supply for the next two to three years. Conscious of this long-term outlook and the pressing need for our high-quality gloves to protect front liners in the ongoing fight against the pandemic, Hartalega continues to ramp up our capacity expansion plans via our Next Generation Integrated Glove Manufacturing Complex (NGC),” he said.

For Hartalega’s Plant 6 of the NGC, eight out of 12 production lines have been commissioned, while the first production line for Plant 7 is on-track for completion by October 2020.

All the remaining examinations of glove production lines for Plant 7 are targeted to be completed by March 2021, he said.

Kuan said the group expects to commission the first production line of the NGC 2.0 in the first half of 2022. The NGC 2.0 facility will provide an annual installed capacity of 32 billion pieces once completed.

“With these plans in the pipeline, this will enable Hartalega to continue delivering our gloves to front-liners across the globe without disruption, in addition to ensuring the group is well-equipped to cater to future demand growth in the years to come,” Kuan noted.