Always nice to know when people read my article and then make money from it. On Tuesday, Hartalega had their AGM and some of my assumptions in the first article was addressed. There were also a few other things mentioned and I will comment on them.
Hartalega: ASP now is 3 times higher compared to pre-Covid levels. Current ASP will last until the end of the year and will increase at around 30% per quarter after that.
My comment: This confirms my estimates earlier that ASP is at around USD60 per thousand gloves as ASP pre-covid was at around USD20 per thousand gloves. My assumption of USD90 per thousand gloves by end of the year looks wrong as management guided that it will remain at around USD60 until the end of the year. But my forecasted profit should be ok since my forecasted profit of RM5.2 billion is for FY 2022 (covering the period from 1 April 2021 to 31 March 2022). By April 2021, ASP should be close to Topglove's current ASP of USD100 per thousand gloves since Hartalega's 4Q2021 (January 2021 to March 2021) ASP should be at around USD78 per thousand gloves (1.3 x 60) and 1Q2022 (April 2021 to June 2021) ASP should be at around USD101 per thousand gloves (1.3 x 78). My forecast also uses USD90 per thousand gloves for the whole of FY 2022 and is actually unrealistic and too low.
Hartalega: Even with vaccine, glove demand will not subside for another 3 years and there is additional demand of 120 billion gloves for the next 3 years due to the virus and this additional demand of 120 billion gloves cannot be fulfilled by existing and new players. It will also take 1-2 years for new players to start as regulatory approvals will take a long time.
My comment: Obviously I wouldn't know if the 120 billion extra gloves and 3 years are correct but I definitely agree that if vaccine is found, demand for gloves will not subside. Demand for gloves will actually increase because gloves are needed for the vaccination process. Share price correction due to vaccine news is actually a very nice opportunity to collect. I find it shocking that some research houses estimate that demand and ASP for gloves will peak by the first half of 2021 when the orderbook of most glove companies are filled for close to 2 years - which means until the 3rd quarter of 2022. This means that we can expect ASP to continue rising for at least another year and stay at that peak for almost the whole of 2022.
Hartalega: Not considering bonus issue or share split because Top Glove and Supermax experienced bad share price correction even with bonus issue.
My comment: I do not agree with this. Whether there is a bonus issue or not will not determine if there is a selloff. The massive retreat in share price of Top Glove and Supermax earlier was because of margin calls. As their share prices were falling furiously, obviously traders were having margin calls and margin calls are continuous (when some people have margin calls and are forced to sell off holdings, prices fall, which then hits the margins of other traders - it is a vicious cycle). Anyway, Hartalega's share price also corrected significantly without the bonus issue, so it's not a good reason.
Today, Top Glove will release their quarterly results and as per my Top Glove article, I expect their profit this quarter to be at around RM1.6 billion. The research houses are estimating a profit of around RM800 million this quarter. I will update my Top Glove article after the results.