Hartalega records full year revenue growth of 26.7% to RM 931 million but profit before tax margin drops from 34.4% to 26.8% due to increase in raw material prices of nitrile latex, fuel cost and more competitive sales pricing

(HARTA closing stock price today (8.5.2012) was RM 7.84)

Hartalega Holdings Berhad net profit for the fourth quarter ended March 31, 2012 fell 4.55% to RM50.01 million from RM52.39 million a year earlier, despite a 24.77% increase in revenue to RM240.22 million.

The company said on Tuesday that the significant increase in revenue was in line with the continuous expansion in production capacity and increase in demand.

However, its bottom line was impacted by the increase in raw material prices of nitrile latex, fuel cost and more competitive sales pricing for the current quarter compared with the corresponding quarter of the preceding year, it said.

Earnings per share was 13.73 sen compared with 14.42 sen a year earlier, while net assets per share was RM1.70.

The company declared a third interim dividend of six sen per share single tier for the financial year ended March 31, 2012 to be paid on June 13.

For the financial year ended March 31, Hartalega’s net profit was up 5.95% to RM201.62 million from RM190.29 million.

Hartalega said revenue for the year rose to RM931.08 million from RM734.92 million.

Reviewing its performance, Hartalega said the global demand for nitrile gloves continued to grow by 29% for the year 2011 due mainly to switching momentum from natural rubber gloves to nitrile gloves.

It said his had spurred a significant increase in nitrile gloves production capacity by the industry which it was confident would be more than matched by resilient demand dynamics.

‘Furthermore, we do not expect a price war from the second half of 2012, as claimed by certain quarters as global demand growth continues to outpace growth in industry capacity,” it said.

The company said that on the contrary, it had to put some of its customers on allocation for their April 2012 purchase and beyond despite adding two new production lines in plant 5 to meet escalating demand.

“Based on our experiences, there are no expectations for a price war in the foreseeable future.

“Rather, the continued expansion in global demand for nitrile rubber gloves would be satisfied by industry capacity increase. This would only generate healthy competition among competitive rubber glove manufacturers,” it said.

Hartalega said it had achieved the internal target growth for both sales revenue and net profit for the financial year ended 31 March 2012.

“The board of directors is optimistic that the Group will achieve continuous growth and securing better results for the next financial year,” it said.

Source: www.theedgemalaysia.com

Hartalega vows to sacrifice profit margins to sustain earnings growth and increase market share - Managing Director Kuan Kam Hon

(HARTA closing stock price today (4.5.2012) was RM 7.91 )

Hartalega Holdings Bhd, the world’s largest synthetic rubber glove maker, is prepared to narrow its profit margin to generate stronger earnings growth once its new plant is ready.

The RM1.5 billion next generation integrated glove manufacturing complex (NGC) project, which was announced last month, will be constructed in two four-year phases. The first phase (2013-2017) will involve the building of 40 production lines with an annual capacity of 14 billion gloves. Phase two (2017-2021) will add another 30 production lines with an annual capacity of 10.5 billion pieces.

The new capacity coming on from the NGC would allow room for Hartalega to map out its marketing strategy on gaining volume. The complex will be located in Sepang.

Its managing director Kuan Kam Hon said a right pricing is needed to increase the company’s market share. This would lead to compression in profit margins, but Hartalega’s earnings per share would grow, he added.

“As a public listed company, the most important thing is growth on earnings per share. There is no point holding on to the [profit] margins if it does not benefit shareholders” he said.

Kuan does not believe the market is oversupplied.

“But we are not going to hold on to that [higher profit margins], we are going to give it away by reducing our selling price,” he told reporters after the company EGM yesterday.

Upon completion of the NGC, Kuan said Hartalega would have an annual capacity of 38 billion gloves, compared with 10 billion gloves currently.

According to Kuan, the NGC is expected to increase Hartalega’s sales per employee to RM516,000 a year from RM302,000 currently. The industry’s average is around RM190,000.

“Hypothetically, let’s say that if our sales reaches RM2.2 billion by 2016 and we maintain our current margin of over 20%, [our profit] will be around RM450 million. But we don’t need RM450 million... we need to allow the margin to contract. We would be happy with about RM400 million, [which would mean a] 19% margin and our shareholders will go ecstatic,” he added.

For the nine months ended December 2011, Hartalega achieved a net profit of RM151.6 million compared with RM137.76 million a year earlier. Revenue came in at RM690.86 million versus RM542.39 million in the previous corresponding period.

Its net profit grew to RM190.32 million for FY11 ended March 31 from RM143.06 million. Revenue was higher at RM734.92 million from RM571.89 million the year before.

On the landscape of the glove industry, Kuan does not believe that the market is oversupplied. “We are not experiencing excess capacity and we have not seen other players like Kossan , Supermax or Top Glove targeting our customers.”

Kuan said there is demand for gloves, which is why Hartalega constructed a new plant in February. The production plant, which is expected to be completed in June next year in Batang Berjuntai (now called Bestari Jaya), will boost Hartalega’s current capacity by another 3.5 billion gloves.

On the price of nitrile, a major raw material used in Hartalega’s gloves, Kuan believes prices will fall by about 5% in the next four months, on the back of a softening global demand for the material.

He noted that nitrile prices are less volatile than natural rubber (latex) prices, as nitrile is not a traded commodity and thus not subject to speculative activity.

On the recently announced new minimum wage order, Kuan said it is still uncertain how it would impact Hartalega as not much details were provided. But, all other things being equal, the new wage policy could potentially erode Hartalega’s bottom line by 5%, he added.

Source: www.theedgemalaysia.com

Hartalega Holdings MD Kuan Kam Hon expects nitrile glove selling prices to come down as much as 5% in the immediate months to pass on savings to customers

(HARTA closing stock price yesterday (3.5.2012) was RM 7.85 )

World's biggest nitrile glovemaker Hartalega Holdings Bhd expects glove prices to slide as much as five per cent in the immediate months.

"Nitrile gloves are currently selling at US$32 (RM96) per 1,000 pieces. It is likely to come down to around US$30 (RM90) in the immediate months. We'll pass on the savings to our clients," said managing director Kuan Kam Hon.

"We expect butadiene price to come down further because suppliers in China, Japan, South Korea and Taiwan have cut back on their production output, given bearish market sentiment," Kuan told reporters after a shareholders' meeting here yesterday.

According to authoritative chemical industry journal ICIS, global demand for butadiene is around 11 million tonnes per year. The petroleum derivative is now selling for US$2,800 (RM8,400) per tonne.

Right now, Hartalega supplies 17 per cent of the world's demand of 45 billion pieces of nitrile gloves per year.

Since the last quarter of 2010, Hartalega has experienced keen competition from Top Glove Corp Bhd, Supermax Corp Bhd, Kossan Resources Industries Bhd and Latexx Partners Bhd as they switch more of their production lines to make nitrile gloves.

Many of them have also started to step up mechanisation of their production lines. Machines from China are being fitted in to accelerate their lines to run at 26,000 pieces of gloves per hour.

Asked if he is anxious of the competition hotting up, Kuan smiled.

Currently, Hartalega is the world's only rubber glovemaker that has fully automated its stripping and packing lines. Still, it is not one to rest on its laurels.

In fact, Kuan said he will continue to press on his team of mechanical engineers to crank up the production lines which are already running at break-neck speed of 40,000 pieces per hour.

When asked on expansion plans, Kuan replied that the group is putting up Plant 6 that can churn out another 3.5 billion pieces by mid-2013. "It'll cost around RM200 million," he said.

"I believe global demand is still very positive as we continue to capture larger market share through our value proposition.

"As production goes up, the cost per thousand pieces of gloves should come down and profitability should improve," he added.

Since its production lines are fully automated compared to its rivals, Hartalega has earned its name as the world's fastest glovemaker.

Not surprisingly, its productivity per worker is RM306,000. The industry's average is only RM190,000 per worker.

Source: www.btimes.com.my