Hartalega's Latest Result and What's Next? (November 2021)

In an exchange filing today, Hartalega Holdings Bhd's net profit surged 67.7% to RM914.01 million in Q2 FY2022 from a year ago.

More details below:

Q2 FY2022 vs Q2 FY2021 (Year-on-year comparison)

For the current quarter ended 30 September 2021 (Q2FY22), the Group achieved higher sales revenue of RM 2.01 billion, an increase of RM 665.3 million or 49.4% from the corresponding quarter in the preceding year (Q2FY21). The higher sales revenue was mainly due to the increase in average selling price (ASP).

Profit before tax has increased by RM 504.4 million or 73.9% to RM 1.18 billion, as compared to RM 683.0 million in Q2FY21. The increase in profit before tax was mainly due to the higher sales revenue which was partially offset by the higher raw material cost.

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Q2 FY2022 vs Q1 FY2022 (Quarter-on-quarter comparison)

Revenue for the quarter amounted to RM 2.01 billion, decreased by RM 1.89 billion or 48.5% as compared with the preceding quarter (Q1FY22). The lower sales revenue was due to the decrease of 27% in ASP as compared to Q1FY22. Sales volume has also dropped 34% from Q1FY22 as the plants were shut down due to the Enhanced Movement Control Order (EMCO) in July ’21 and subsequently operating at only 60% workforce restriction following the National Recovery Plan (NRP).

Profit before tax for the quarter decreased by RM 1.69 billion or 58.8% to RM1.18 billion as compared to Q1FY22. On top of the decrease in sales revenue, the profit margin was also affected by higher raw material costs where the drop in raw material prices was not in tandem with the drop in ASP. Operating cost was also higher due to the lower plant utilisation rate as compared to Q1FY22.

Moving forward how ya?

In line with the growing rubber glove demand globally, the Group will continue to expand its capacity in NGC, Sepang. To date, 8 out of 10 lines in Plant 7 have been commissioned. Upon full commissioning, Plant 7 will have an annual installed capacity of 2.7 billion pieces.

The construction for the upcoming expansion under NGC 1.5, is currently underway and the Group targets to commission the first line by April 2022. NGC 1.5 includes 4 additional production plants which will contribute 19 billion pieces to the annual installed capacity. With the completion of NGC 1.5, the Group’s annual installed capacity will increase to 63 billion pieces per annum.

The average selling prices for gloves has been declining from its peak in the 1st half of the financial year moving into 2nd half of the financial year. The tapering of average selling prices in recent months is due to the increasing supply from major glovemakers as well as moderating demand because of customers adjusting inventories in view of declining selling prices.

Post pandemic, the sector is expected to undergo a structural step-up in demand on the back of increased glove usage from emerging markets with low gloves consumption per capita and heightened hygiene awareness.

How about the impact of the 'Cukai Makmur' (Prosperity Tax) announced during Budget 2022?

The Group anticipates that the one-off special tax could have a material impact on the earnings of the 2nd half of the current financial year (FY2022) when the Prosperity Tax is gazetted.

No worry.

At least another quarter of hefty dividends...

On 2 November 2021, the Board has declared a first interim dividend of 35.20 sen per share single tier in respect of the financial year ending 31 March 2022 and payable on 2 December 2021. The entitlement date has been fixed on 18 November 2021.

The Group is committed to its dividend policy of distributing a minimum 60% of the Group’s annual net profit, after taking into consideration of the one-off special tax under Cukai Makmur as recently announced in the Budget 2022 for the financial year ending 31 March 2022.

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