PETALING JAYA: Hartalega Holdings Bhd
’s latest technology refresh could again set the industry benchmark for production efficiency while alleviating labour pressures, says CGS International (CGSI) Research.
This was following a recent visit to the group’s Next Generation Integrated Glove Manufacturing Complex Plant 9 in Sepang, Selangor.
In a note to clients, the brokerage firm said the new plant has pushed its line output to 52,000 pieces per hour compared with 45,000 pieces per hour from a technology refresh back in 2012.
While the 16% throughput improvement is notable, CGSI Research said the larger benefit lies in reduced labour intensity.
“We estimate manpower requirements could fall by about 26% from 2.3 to 1.7 employees per million gloves produced, which is a meaningful advantage as labour costs become an increasingly important component of the cost base at about 10% to 15%, according to management,” the brokerage added.
This is particularly relevant given minimum wage levels in Malaysia have risen from RM900 per month in 2012 to RM1,700 per month today, with a further increase to RM2,000 per month expected in mid-2027, as announced in Budget 2027 last month.
Meanwhile, CGSI Research said Hartalega’s management believes its most viable path towards cost leadership lies in manufacturing excellence rather than vertical integration.
Discounting China’s structural energy advantage from cheaper coal versus Malaysia’s reliance on natural gas, Hartalega’s cost per 1,000 pieces of gloves could be US$0.50 to US$1 lower than industry cost leader, Intco Medical if its entire production footprint were upgraded to the new 52,000 pieces per hour platform by end-2028, management said.
Notably, Intco’s cost leadership is supported not only by manufacturing scale, but also by a highly integrated ecosystem of related-party businesses spanning raw materials, moulds, production equipment and energy generation.
However, Hartalega’s management believes that replicating such a conglomerate structure is unlikely to maximise shareholder returns.
This is because Hartalega lacks the same expertise in these other businesses, said CGSI Research.
The brokerage firm, which reiterated a “reduce” call on Hartalega said: “We view its recent 17% share price rise since Oct 22 as having pushed valuations ahead of earnings growth.”
It also set the stock’s target price unchanged at RM1, given Hartalega’s cost optimisation efforts, but viewed slower margin recovery versus its peers, which is unlikely to recover fully to pre-Covid levels by end-financial year 2029.
