HARTA 5168 HARTALEGA HOLDINGS BERHAD | Decrease In Revenue, Widening Losses, Strategic Decommissioning of Some Production Lines (Q4FY2023)

 HARTA 5168 HARTALEGA HOLDINGS BERHAD | Decrease In Revenue, Widening Losses, Strategic Decommissioning of Some Production Lines (Q4FY2023)

Yesterday, Hartalega Holdings Berhad (HARTA, 5168), one of Malaysia's largest rubber glove manufacturers, reported a decline in revenue and an increase in losses for the quarter, which is not surprising given the declining demand for gloves and the significant drop in average selling price (ASP). This comes after KOSSAN (7153) also reported a decline in performance last month.


Before that, let’s get to know about the company briefly. HARTA was founded in 1988 and is headquartered in Selangor. It went public on the Main Board of Bursa Malaysia in 2008. As of its 2022 financial report, the company has seven factories and an annual glove production capacity of 44.0 billion units. It has become one of the world's largest nitrile glove manufacturers, with most of its gloves sold overseas and exported to over 70 countries. North America accounts for the majority of the company's revenue in 2022, representing approximately 54.0%. The remaining market share comes from Europe (23.5%), Asia (13.5%), Australia (5.2%), South America (1.9%), the Middle East (0.8%), Malaysia (0.4%), and other countries (0.7%).



The day before the latest quarterly report was released, HARTA announced the closure of its Bestari Jaya (BB) factory and the integration of its operations into the Next Generation Integrated Glove Manufacturing Complex (NGC) in Klang. The factory closure is expected to last for six months until the end of 2023.


According to the statement, BB has 4 production plants and 40 production lines, with an annual production capacity of 13.0 billion gloves, accounting for about 30.0% of the total production capacity. Unfortunately, due to outdated technology, BB's operating efficiency is lower than that of NGC. For the information, each production line of NGC has an annual production capacity of up to 388.0 million gloves, while BB's production line capacity is 325.0 million gloves. This has led to higher energy, labor, and maintenance costs for BB.


Now, let's discuss HARTA's performance for the latest quarter (Q4FY2023).


Revenue Comparison (YoY -46.8%, QoQ +11.7%)


As of March 31, 2023, the company's revenue decreased by about RM452.9 million or 46.8% YoY to about RM515.7 million due to the decline in glove ASP and sales volume. In addition, the company continues to face unfavorable factors such as market oversupply and customer inventory adjustments.


However, compared to the previous quarter, the company's revenue increased by about RM53.9 million or 11.7% this quarter due to an increase in glove sales volume.


Net Profit Comparison (YoY -52.9%, QoQ -848.7%)


Due to the simultaneous decline in glove sales volume and ASP, the company's net loss further deteriorated, increasing from about RM197.9 million in the same period last year to about RM302.7 million. This was because the company had a one-time asset impairment loss of RM347.0 million this quarter due to the shutdown of the BB factory mentioned above.


In addition to the decrease in production utilization rate, the increase in energy and labour costs has also resulted in an 848.7% quarter-on-quarter increase in the company's net loss.


Outlook


The global medical glove market is still facing serious challenges. During the pandemic, the industry's production capacity continued to expand, leading to a significant accumulation of inventory and a market supply-demand imbalance. In addition, the glove industry is facing pressure from rising costs, such as energy and labour. Therefore, the company expects another one-time expense in the upcoming 2024 fiscal year, namely the cost of retrenchment and contract obligations, amounting to approximately RM70.0 million.


Given this challenging situation, HARTA has launched a five-year strategic plan, which includes the aforementioned actions of closing its BB factory and streamlining operations by consolidating them at NGC. Management has stated that this move will lower operating costs, thereby enhancing the company's overall competitiveness.


In summary, although HARTA's net loss for the current quarter continues to widen, the company still holds a huge cash reserve of approximately RM1,724.4 million. This will enable the company to continue developing towards innovation and automation, becoming a technology-driven glove company at the forefront of the industry.


#HARTA

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