HARTA (5168) - 10 Key Takeaways From Hartalega AGM 2016

HARTA (5168) - 10 Key Takeaways From Hartalega AGM 2016

Hartalega Holdings Berhad is a nitrile glove manufacturer where I have personally visited its Sepang NGC manufacturing plant on March 31, 2016, feeling nothing but impressed with the way it was constructed. You may read the article about my visit HERE.

Most companies do not post higher profit growths continuously, the same applies to Hartalega, one of my favourite companies in Malaysia. For 1Q2017, Hartalega posted a lower net profit of RM56 million, down 10.38% as compared to 1Q2016.

As such, I decided to attend its AGM to check if the fundamentals still remain intact and I shall summarize for you what I have learnt from the AGM.

#1. NGC's utilization rates have consistently been at least 90%.
The management disclosed that overall utilization rate was in the range of 80-85% for the FY2016.

#2. The management has done more than just biomass plant for the green initiatives.
Hartalega has been working very hard to produce thinner and lighter nitrile gloves, which require lesser resources. However, the public only pays attention to the biomass plant, giving much lesser credit to the latter.

#3. Unable to sustain its high margin due to stiffer competitions
Due to the entrance of other glove makers to produce nitrile gloves in large quantity, Hartalega did advise long before that it could not sustain its high profit margins of more than 30%.

#4. Expects price competitions to have bottomed
Mr. Kuan Kam Hon expects competitiveness has reached the bottom because no one can allow the margin to fall further by giving out much lower prices.

#5. Malaysia has grown in global market shares
The industry was expected to grow 8% - 8.5% in the long term. However, Malaysia's glove exports grew 30% in FY2016. This implies that our country has taken the market share from the neighboring countries.

#6. Mr. Kuan Kam Hon sees margin going up again
Due to Hartalega's measures in reducing costs.

#7. Hartalega did not renew the contracts for its 600 contract workers due to automation efforts.

#8. The management has no plan to reduce dividend payout due to strong balance sheet.

#9. Positively, Mr. Kuan expects 1Q2017 to have bottomed.
The management has no intention to give overly competitive pricing to compete with other glove producers.

#10. The management has placed a lot of attention to expand in China and India.
Hartalega did not have presence in the above 2 countries 5 years ago. It was also revealed that it is harder to penetrate the Chinese market due to the fragmented market in China. The management finds it harder to grow in India than China due to the price sensitivity of the Indians. They buy the cheapest gloves possible.

HARTA (5168) - 10 Key Takeaways From Hartalega AGM 2016