PETALING JAYA: Glove stocks on the local bourse continue to slide despite stunning profits announced by two of the top four glove makers, as investors remain concerned about glove average selling prices (ASPs) trending downwards due to increasing global production.
Rakuten Trade Sdn Bhd head of equity sales Vincent Lau said investors are taking the view that global glove production capacities ramping up, including in China, would mean supply would be greater than the increase in demand in the coming years.
“Glove ASPs are trending lower. With Covid-19 vaccinations ramping up and some countries saying they will learn to live with the virus, the super profits of glove makers are seen as unlikely to continue,” Lau told StarBiz.
A bank-backed research analyst also agreed, saying that the general market consensus is that glove ASPs are expected to decline in the second half.
“The market is looking forward. Glove stocks’ prices look cheap now because whatever is seen now is trailing price-to-earnings – derived from the profits over the last 12 months,” said the research analyst.
Hartalega CEO Kuan Mun Leong said in a statement yesterday: “Moving forward, while ASPs for nitrile gloves have been declining from its peak, global demand is expected to remain heightened, particularly due to new waves of cases with Covid-19 variants affecting countries worldwide.”
Kuan added that demand growth will also be driven by increased glove usage from emerging markets with low glove consumption per capita and increased hygiene awareness.
Hartalega is expanding its production capacity via its Next Generation Integrated Glove Manufacturing Complex (NGC) and NGC 1.5 in Sepang.
To date, eight out of 10 lines of Plant 7 at the NGC have been commissioned. Once fully completed, Plant 7 will have an annual installed capacity of 2.7 billion pieces.
In addition, construction for NGC 1.5 is ongoing, with the first production line targeted to be commissioned by December 2021.
NGC 1.5 expansion plans include four additional production plants, which will contribute 19 billion pieces to the annual installed capacity.
“The group’s annual installed capacity is expected to increase to 63 billion pieces over the next two to three years,” said Kuan.
In a filing with Bursa Malaysia, Hartalega noted that in the previous quarter, it had agreed to buy 250 acres of land in Bukit Kayu Hitam, Kedah, and plans to invest RM7bil to build 16 manufacturing facilities over the next 20 years.
Coupled with its earlier investment in Sepang (60 acres) and Banting (95 acres), these acquisitions will enable Hartalega to reach an annual installed capacity of 95 billion pieces by 2027.
For its first quarter ended June 30, 2021, Hartalega posted a stunning 928.4% year-on-year jump in net profit to RM2.26bil from RM219.7mil, while revenue rose 324.2% year-on-year to RM3.9bil from RM920.1mil.
On a quarter-on-quarter basis, net profit rose 101.9% while revenue was 69.1% higher.
Diluted earnings per share was 66.08 sen compared with 6.44 sen a year ago.
Hartalega said the higher sales revenue was mainly due to the increase in glove ASPs as well as improved sales volume, while net profit also benefited from lower utilities expenses, partly offset by the increase in raw material prices.