Hartalega’s 3Q earnings to surge on the back of higher ASP


HARTALEGA Holdings Bhd’s net profit for the third quarter ended Dec 31, 2020 (3Q21), is expected to surge 643% year-on-year (YoY) to RM900 million driven by an increase in its average selling price (ASP).

In a research note yesterday, RHB Investment Bank Bhd (RHB Research) maintained its ‘Buy’ call on the nitrile glovemaker with a target price (TP) of RM23.50, reflecting a 90% upside as it expects a “superb” quarter for the group while noting that Hartalega offers, the best operational stability due to its gold standard in Covid-19 prevention.

“We expect Hartalega’s 3Q21 earnings to surge 643% YoY and 65% quarter-on-quarter (QoQ) to RM900 million. This is driven by an ASP increase estimated at 50% QoQ.

“Our TP reflects 21.5 times financial year 2022 forecast price-to-earnings (or -1.1SD below its five- year average),” its research note on the company yesterday stated.

The estimated surge in earnings will be a new record high for the company.

The research outfit expects Hartalega’s ASP for the quarter to jump 50% QoQ to US$50 (RM202.50) per box of 1,000 pieces of gloves, which is consistent with the rate of increase in the market price.

RHB Research stated that Top Glove Corp Bhd guided for a 30% quarterly increase in its ASP for its 2Q21.

“As Hartalega’s ASP comes from a low base of US$33.80 per box in 2Q21, the magnitude of increase is likely to be higher,” said the firm.

The research house also gave Hartalega an environmental, social and governance (ESG) score of 3.11, which is the highest among glovemakers under its coverage.

It is of the view that the company outperforms other glovemakers in the social element of ESG due to its low Covid-19 infection rate.

“Hartalega has started to implement periodical rapid test kit testing. Under it, Hartalega plans to test 10% of its workforce every week.

“This is done voluntarily, despite it seeing a low Covid-19 infection rate of 0.4% of its workers.

“We are positive on this, as it should translate into operational stability, as we expect very minimal downtime due to Covid-19 in view of strict testing and precautionary measures taken.”

Hartalega’s expansion plans are intact, and the company completed its Plant 6 with a capacity of 4.7 billion pieces per annum (ppa) in October last year.

For Plant 7, the company has commissioned three lines out of the total six lines. The plant is due to be completed by March and upon completion, total capacity will increase to 44 billion ppa from the current 41 billion ppa.