Lower sales, ASP hit Hartalega’s 2Q earnings

This shows the rubber glove industry has reached an inflection point and edging towards normalisation in profit margins

by ANIS HAZIM / Pic by TMR FILE PIX

HARTALEGA Holdings Bhd’s second quarter (2Q) earnings reveal the rubber glove industry, which saw exponential growth in profit during the height of the Covid-19 pandemic period, has reached an inflection point and edging towards normalisation in profit margins as average selling price (ASP) falls and demand supply fundamentals edge towards more balanced outcomes.

The country’s second largest glovemaker posted a 68% year-on-year (YoY) increase in net profit for the 2Q ended Sept 30, 2021 (2Q22) to RM914 million due to higher ASP in the period but earnings fell almost 60% on a quarter-on-quarter (QoQ) on weaker sales and ASP.

Hartalega’s revenue for the quarter increased by 48.14% YoY to RM2 billion compared to RM1.35 billion in the same quarter last year but fell 48.5% compared to the RM3.9 billion it booked in 1Q22.

Profit margin was also affected by higher raw material costs whereby the drop in raw material prices was not in tandem with the dropinASP.

The operating cost for the period was also higher due to the lower plant utilisation rate. Hartalega’s earnings per share (EPS) for the period amounted to 26.74 sen but the company dug into reserves to declare an interim dividend of 35.2 sen per share for the quarter payable on Dec 2, its exchange filing yesterday revealed.

For the six months ended Sept 30, 2021 (6M22), Hartalega achieved higher revenue of RM5.91 billion, or 161% higher or RM 3.65 billion more YoY.

“The higher sales revenue was mainly contributed by the increase in ASP compared to 6M21, after offsetting the increased raw material cost coupled with the impact on reduction in sales volume by 11%,” it said in a filing to Bursa Malaysia.

Hartalega CEO Kuan Mun Leong remains optimistic of the industry and company’s prospects.

“For the long-term, post-pandemic prospects remain positive, driven by the structural step-up in demand stemming from heightened glove usage in emerging markets with low glove consumption per capita and rising hygiene awareness,” he stated.

He, however, warned the one-off “Cukai Makmur” (Prosperity Tax) announced in Budget 2022 could have a material impact on its EPS in the second half of the group’s financial year (2HFY22).

Meanwhile, Hartalega continues to expand its capacity in line with market supply and demand dynamics via its Next Generation Integrated Glove Manufacturing Complex (NGC).

“The construction of our NGC 1.5 expansion is progressing, with the first line targeted to be commissioned by April 2022.

“The completion of NGC 1.5 in the next three to four years will see the addition of four production plants contributing 19 billion pieces per annum, which will increase the group’s total installed capacity to 63 billion pieces per annum,” Kuan added.

Hartalega’s share price rose eight sen or 1.41% at RM5.75 closed yesterday, valuing the group at RM19.71 billion.