CIMB Research sees Hartalega recording stronger quarters

KUALA LUMPUR: CIMB Equities Research expects nitrile glove maker Hartalega to record stronger quarters ahead in tandem with the rollout of new capacity. 

It said on Wednesday the first of 12 lines at Plant 5 (capacity of 4.5 billion pieces per annum when fully commissioned) began commercial production in August. Its ramp-up plans involves installing two lines per month. 

“Plant 6 is also under construction; we expect a gradual ramp-up in production starting 1QFY20 (2QCY19). The group also said it has plans for a smaller plant, Plant 7, to make specialty gloves with lower volume but higher margins. We gather commercial production for Plant 7 is slated for 2HCY19,” it said.

To recap, on May 31, Hartalega launched the world’s first non-leaching antimicrobial glove in the UK which will be its launch pad to target its European customers. It has also applied to US Food and Drug Administration (FDA) and is aiming for an approval by 1QCY20 for the sale the new gloves to the US market. 

Hartalega said it aims to sell up to 1bn pieces of the product in FY19 and will ramp up production if necessary to meet demand. 

On pricing, Hartalega said it will be priced competitively with any pricing premium adequate to cover extra production costs.

“We make no changes to our FY19-21F EPS estimates. Our Hold call is retained, but we raise our TP to RM6.30. The stock is now pegged to a higher P/E multiple of 34.5 times, in line with +one standard deviation of its three-year mean, from 31.5 times previously. 

“In our view, Hartalega should continue to trade at a higher premium to its peers due to: i) its status as the sole glove manufacturer in KLCI index, ii) the strongest EPS growth in the glove sector, and iii) its leading position in the nitrile segment in terms of technology,” it said.