Introduction

Hartalega Holdings, the world’s leading nitrile glove manufacturer, has recently released its 2QFY25 financial results. Despite facing significant headwinds, the company has shown resilience with a robust sales volume and ASP growth. This article delves deep into the company’s financial performance, stock impact, and future projections, providing a comprehensive analysis for investors and stakeholders.

Company Overview

Share Price: RM3.32

Target Price: RM3.66

Upside: +10.2%

Hartalega is globally renowned for its nitrile gloves, catering to the health care sector. The company boasts a significant market cap both in RM and USD, with substantial daily turnover and strong major shareholders.

Financial Performance

2QFY25 Results

In 2QFY25, Hartalega reported a revenue of RM652.1 million, marking an 11.7% increase quarter-on-quarter (qoq) and a 44.2% rise year-on-year (yoy). This surge was primarily driven by a 16% increase in sales volume, which offset a 3% decline in ASPs in RM terms. However, higher operating expenses, including ramp-up costs for the NGC 1.5 plant, led to a core net loss of RM29 million, down from a RM37.2 million profit in 1QFY25.

Operational Metrics

The company saw an impressive 15.5% qoq increase in the utilization rate, reaching 90%. The blended ASP in USD terms saw a marginal increase, while the cost per unit surged due to higher input costs.

Key Financials

Hartalega’s key financial metrics from FY2023 to FY2027 show significant growth and recovery projections:

• Net turnover is expected to rise from RM1,838 million in 2024 to RM4,154 million in 2027.
• EBITDA is projected to improve from a negative RM23 million in 2024 to RM849 million in 2027.
• Net profit is expected to rebound from a negative RM189 million in 2024 to RM505 million in 2027.
• The EPS is projected to increase from a negative 4.5 sen in 2024 to 14.9 sen in 2027.

Stock Impact

Despite the challenging 2QFY25 results, Hartalega’s management remains optimistic about significant operational improvements in the upcoming quarters. The company anticipates:

• A 6-10% qoq increase in sales volume for 3QFY25.
• A US\$1-2 increase in blended ASP (5-9% qoq).
• Potential tailwinds from the strengthening RM/USD exchange rate.

The revised tariffs on China medical gloves, set to commence in early 2025, are expected to significantly benefit Hartalega. US distributors are likely to shift their purchases back to Malaysian manufacturers, potentially revitalizing Hartalega’s profitability and margins to pre-pandemic levels by 2026.

Future Projections

Capacity Expansion

Hartalega has completed the first phase of its NGC 1.5 capacity expansion ahead of schedule, increasing its total available production capacity to approximately 37 billion pieces annually. The company does not face any labor constraints and has a sufficient workforce to meet its current production capacity.

Dividend Policy

Following a turnaround in earnings in FY24, Hartalega declared its second dividend since September 2022. The company maintains a 60% dividend payout policy, declaring a 0.56 sen dividend for 2QFY25, up from 0.35 sen in 1QFY25.

Environmental, Social, and Governance (ESG) Initiatives

Environmental

Hartalega is committed to reducing its carbon footprint, aiming to achieve a 22% reduction in greenhouse gas (GHG) emission intensity by 2024.

Social

The company adheres to the International Labour Organisation’s (ILO) 11 indicators of Forced Labour, ensuring compliance with local and international social standards.

Governance

Hartalega’s board comprises five independent directors, making up 63% of the board members, ensuring a balanced and transparent governance structure.

Conclusion

Hartalega Holdings’ 2QFY25 results reflect the company’s resilience amidst challenging market conditions. With strategic capacity expansions, a robust dividend policy, and a commitment to ESG initiatives, Hartalega is poised for significant growth and recovery in the coming years. The recommendation remains a BUY with a target price of RM3.66, reflecting a 10.2% upside potential.