Sustaining market share the priority

KUALA LUMPUR: Hartalega Holdings Bhd will prioritise sustaining its market share and remaining competitive in a global industry hit by the oversupply of rubber gloves from existing manufacturers and newcomers post-pandemic.

The bearish demand-supply fundamentals of the industry have severely impacted the prices and margins of glove makers, with the situation likely to persist in the immediate future as producers fight for market share.

“Prices (of gloves) have been dropping and we have been making adjustments in terms of our average selling prices (ASPs) in order to compete in the market – what we don’t want to see happening is for Malaysian companies such as Hartalega losing our market share,” chief business officer Kuan Mun Keng said at a media briefing after its AGM yesterday.

He added that it was difficult to do a benchmark for glove makers based on ASPs as it may not be a good indicator.

Hartalega’s production is 90% nitrile gloves while some of its competitors have one half nitrile and one half latex glove production, while others have very strong sales in surgical gloves.

The company will continue to compete with its innovative products while anticipating a fallout of industry producers unable to compete, which will then see ASPs stabilising.

To a question if the company was still able to make a profit at the current low ASPs, Hartalega’s executive chairman Kuan Kam Hon@Kwan Kam Onn said there was still earnings visibility and this was evident from its recently reported quarterly results.

Despite a drop in demand and ASPs, Hartalega managed to post a net profit of RM88.28mil for its first quarter ended June 30, 2022 for financial year 2023 (1Q23), while revenue fell 78% year-on-year (y-o-y) to RM845.67mil. The 1Q23 net profit was 96% lower y-o-y.

“Going forward, it will remain challenging but we will do our best to ensure we remain strong and competitive to protect the interest of all our shareholders,” Kam Hon said.

Amid the stiff competition from rubber glove exporters from countries like China and Thailand, Hartalega chief executive officer Kuan Mun Leong said Malaysian producers still held the lion’s share of global exports for rubber gloves.

“China is about 20% of total global capacity. Malaysia still leads with about 51%. China has an advantage in terms of energy costs over Malaysia, as it mainly uses coal to generate its energy needs,” Mun Leong said.

“We hope for the continued conducive environment from the government so that the glove sector here can continue to compete with producers from other countries.

“We need business-friendly policies which are sensitive to the cost of doing business. For glove making, this would include energy costs and wages, as these will determine how competitive the Malaysian glove industry is relative to other countries,” Mun Leong added.

He hoped any change in government policy in the future would give industries ample time to adjust to the new policies.

Mun Leong said the more challenging business environment now where supply continues to be ahead of demand would necessitate for Hartalega to up its game by controlling its costs.

“Our focus on automation will continue – we will invest in this. We want to reduce dependency on manual labour. We continue to also invest in energy-efficient technologies and do research and development – to look into possible reduction in energy usage,” he said.

Hartalega will also scale down its expansion plans to better cope with the new oversupply reality of the industry today.

“We are pacing our expansion plans – we have the NGC 1.5 which we have started constructing last year. Under the Next Generation Integrated Glove Manufacturing Complex (NGC) 1.5 expansion plan, we have four plants we wanted to construct,” Mun Leong said.

“We are in the midst of building two out of the four plants but we are pacing the construction of these two plants – to take into account how the industry evolves. We do not want to commission and push out the new lines when there is still an oversupply situation,” he added.

On the sidelines of the briefing, Mun Leong elaborated the construction of the plant had been delayed by some three quarters.

“We have been asked this question – when will (the plant) be done. It started in the middle of last year, and by the end of last year it should have been done. But it is now (delayed) to the third quarter of this year. During the peak of the Covid-19 pandemic, there were a lot of panic buying and the market needs to digest these over purchases,” he said.

“We are now looking at a completion of the plant at the end of this year and may even consider extending this to the first quarter of next year,” Mun Leong added.

On the prospects of Hartalega being removed as a constituent of the FBM KLCI, Mun Leong said it did not matter much to the company as management was more focused on its smooth business operations.

“Honestly when the company got into the FBM KLCI, we were pleasantly surprised as we didn’t aim for it – this is the function of the company’s performance,” Mun Leong said.

“It’s not so important if we get onto the FBM KLCI or not, but most importantly, we need to stay focused on what we would do in the current situation and how we would deal with competition in the future,” he added.

Hartalega’s shares closed at an eight-year low of RM1.60 yesterday, valuing the country’s second-largest glove maker at RM5.47bil.