CIMB Equities Research said on Wednesday that to encourage better take-up for this product and as a marketing strategy, the group aims to price this product more competitively with any premium in its selling price just adequate to cover the additional manufacturing costs.
“Hence, we believe that margins are unlikely to rise in the near term from this new product despite the lack of comparable products in the market,” it said.
In the first half of its financial year ending March 2018, Hartalega’s glove sales rose by 34% on-year, attributed to higher demand for rubber gloves as a substitute for lower supply of vinyl gloves from China.
“Moving into 2018, Hartalega is confident that global demand for rubber gloves will remain robust as Chinese vinyl glove producers still face difficulties conforming to strict environmental laws under China’s anti-pollution drive.
“Currently, lightweight nitrile gloves (3g) are Hartalega’s most popular product as they have the smallest price difference with vinyl gloves,” said the research house.
CIMB Research said currently, Hartalega is running at full capacity, with all of its 30 billion per annum capacity fully sold until April 2018.
To capitalise on this strong demand, it has fast-tracked its expansion plans, with 11 lines (out of 12 lines) installed as early as January 2018.
Note that all 12 lines were originally scheduled to be ready by end-Apr 2018. For Plant 5, Hartalega is keeping to its plan of starting to install lines by 2HCY18 “but we opine that the group may begin installation ahead of schedule if demand outstrips its current capacity”, said the research house.
For its upcoming results for the third quarter ended Dec 31, 2017 (3QFY18), CIMB Research expects Hartalega to register another record high for quarterly net profit.
“With more capacity having come on-stream during the quarter, we project the group to record better net profit performance quarter-on-quarter and on-year, with 3QFY18 net profit above RM106mil (2QFY18).
“We also expect the group to record higher EBITDA margin given improved operating efficiencies in tandem with higher contribution from Next Generation Integrated Glove Manufacturing Complex,” said CIMB Research.