Hartalega likely to benefit from nitrile glove shortage

The shortage may lead to Hartalega Holdings Bhd, one of the world’s largest nitrile gloves producers, raising its average selling price (ASPs) “more aggressively” in the coming quarters, according to Maybank IB Research.

PETALING JAYA: There’s a worldwide shortage of nitrile gloves, and it could stretch for more than a year into the first half of 2022 due to a lack of raw materials.

This may lead to Hartalega Holdings Bhd, one of the world’s largest nitrile gloves producers, raising its average selling price (ASPs) “more aggressively” in the coming quarters, according to Maybank IB Research.

For the second quarter ending Sept 30, the research house expected Hartalega to increase its ASPs by 30% from the first quarter, and 40% to 50% in the third quarter.

“However, we estimate that Hartalega’s nitrile glove ASPs could still be 30% to 40% lower than some of its peers by end-2020.

“We raise our blended ASPs by 21%, 68%, 81% for the financial year ending March 31,2021 (FY2021), FY22 and FY23, respectively, ” Maybank IB said in a report yesterday.

For comparison, last week, Top Glove, the world’s largest glove manufacturer, expected a more moderate increase in the ASPs for nitrile gloves.

It pointed out that the ASPs for nitrile gloves is currently US$70 per 1,000 pieces and is expected to increase by 30% in October and 15% in November. Top Glove expected another 10% in glove prices from November onwards.

On the back of the higher selling price of gloves in the near term, Maybank IB has raised its earnings estimate on Hartalega by 27% in FY21,125% in FY22 and 267% in FY23.

It has maintained its target price on Hartalega to RM20.60 per share as it lowers its 2021 price-earnings ratio to 14 times from 27 times, given that Hartalega’s earnings may taper in FY23 due to more new supply coming into the market.

“Hartalega is now our top pick for its share price as it lagged behind its big-cap peers. Its ASPs may also catch up with its peers, ” Maybank IB said.

The research house said a portion of the nitrile gloves demand has switched to latex and PVC gloves (due to shorter waiting time and lower ASPs).

However, the bulk of the demand, especially from the United States may remain sticky for nitrile gloves given its protein-free characteristic and superior quality.

“Also, new nitrile glove capacity is constrained by the shortage of NBR supply and glove moulds. As such, the nitrile gloves shortage could persist into the first half of 2022 and Hartalega could be a prime beneficiary for it is the most nitrile-centric player and has the biggest exposure to the US market at about 50% of sales, ” it said.

Maybank IB added that the gross margin of nitrile gloves could be six to eight percentage points higher than that of latex and PVC gloves.

Shares in Hartalega closed almost 10% higher to RM15.90 apiece yesterday.

The Malaysian Rubber Glove Manufacturers Association in July projected global glove demand to grow 20% to 330 billion pieces in 2020, from 298 billion pieces last year.

Malaysia, the leading glove producer in the world, is expected to export 220 billion pieces of gloves valued at RM21.8bil this year compared with 170 billion pieces worth RM17.4bil in 2019.

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