Pent-up demand for nitrile gloves signals stronger 3Q for Hartalega

KUALA LUMPUR: There are signs pointing to a strong rebound of volume growth underpinning Hartalega Holdings Bhd's growth prospects, says Kenanga research. According to the research house, the weak demand of the previous 12 months are now leading to an uptick in restocking activities owing to the Wuhan virus outbreak, which will enforce higher hygiene standards. "Ceteris paribus, a 1% increase in volume sales will raise our FY21E net profit by 1.2%," it said. For 3QFY20, Kenanga noted there were signs of pent-up demand for nitrile gloves, potentially on restocking activities based on longer industry delivery lead times. It said the results would fall within its expectation as it is forecasting a better performance in subsequent quarters. The research house kept it outperform call on Hartalega but raised its target price to RM6.50 from RM6 previously. Moving forward, Kenanga expects demand for nitrile gloves to continue growing and taking market share from latex gloves. "For illustration purposes, going forward, assuming nitrile:latex breakdown of 80:20 (current is 67:37) and based on estimated global demand of 324b pieces in 2020 (forecast for 2019 is 300b pieces and assuming 8% growth rate in 2020), this implies nitrile growth rate of 30% or an additional 51b pieces from switch to nitrile gloves," it said. Meanwhile, the first line of Plant 6 has commenced commercial operations and the remaining 11 lines are expected to be gradually ramped up. Plant 7 is expected to be comimssioned by 2H20, and will focus on small orders as well as speciality products. All in, Plants 5,6 and 7 will add a total capacity of 12.1 billion pieces, raising installed capacity by 27% to 44.6 billion pieces per annum.