Our website is made possible by displaying non-intrusive online advertisements to our visitors.
Please consider supporting us by disabling or pausing your ad blocker.
*Key Messages from Harta 3QFY25 Briefing? (UOBKH)*
*Surprisingly negative tones from management, causing share prices of glove stocks declining c.15% during the briefing ?.*
*i) Volume sales:* 7.6b in 3QFY25(+12% qoq). There’s delayed shipment of 300m pieces of gloves order due to port congestion issues. This 300m pieces delayed shipment have carried forward to March quarter (4QFY25) and managed to ship out.
*- Volume sales?.* While volume sales c.2.5b pieces throughout Oct-Dec 24, upcoming Jan-March Q will see a *13-19% volume sales decline.* For 4QFY25 (March Quarter), management guided utilisation rate of 70-75% (from current 86%). This worked out to be c.2.1b-2.2b pcs/month vs 3QFY25’s c.2.5b (Dec 24) volume sales.
*- Volume sales?.* Weaker QoQ volume sales mainly due to frontloaded purchase by US clients, causing excess inventories to only be depleted in April-May. Expect normalisation of purchase pattern from US customers only in 2Q25 (calendar year).
*ii) Capacity ?:* Progressively commissioned new lines in NGC 1.5, and in 3QFY25 running capacity of 37b by end-FY25. Ramp-up costs of this 37b capacity (additional 10 production lines) have been partially factored in 2QFY25 previously, only additional labour cost incurred in 3QFY25.
*iii) Utilisation rate ?:* Utilisation rate +9% qoq to 86% on adjusted capacity of c.35b.
*iv) ASP ?:* QoQ, blended ASP improved c.4% in 3QFY25 to c.US$22.20/1k pcs. Management guided that blended ASP in 4QFY25 (March Q) will likely be flattish, as they are rolling over ASP level and maintain through March-April.
*v) Cost?:* Raw material cost decreased c.5% qoq in 3QFY25, recent months stabilised and easily passed through by higher ASP. Natural gas cost flattish in 3QFY25.
*vi) China competition??:* Channel checks revealed that China players lowered ASP and selling c.US$15 (previously US$16-17) in Europe regions. *China may look to shift their previous aggregate supply to US of c.30b pieces in phases.* Intco building a plant in Indonesia, at stage of building columns, another China players wanted to invest in Indonesia, some looking at Cambodia, or partnership to expand plant in Vietnam or Thailand. Earliest maybe by mid-2026.
*vi) Rationalisation and Rightsizing in Motion?.* Harta is intensifying cost rationalisation, previously carrying additional headcounts (plant 8 and 9) in anticipation on turning on these lines and because gov’s foreign workers quota. Previously foreign workers level kept at highest level possible, now looking to establish rational capacity. *Looking to reduce headcount from 8k to 7k within 2 quarters* (sufficient for 2.3b pcs production/month
*My two cents and views?*
? *Not out of the woods yet?.* Expect selldown in near-term on seemingly challenging outlook and weak 1Q25 (Jan-March) guidance. Believe such trend will be similar across other domestic glovemakers.
? *Maintain HOLD,* our current TP of RM3.66 is under review.
? *While we’ve consistently highlighted our neutral view as opposed to several bullish peers⚖️,* we advocated investors to take profit since Jan 2025. At this level, we’ll be monitoring closely for entry points instead especially after this selldown.
? *Dont follow the herds?.* While 1Q25 earnings may not be great, 2Q25 onwards the restocking activities from US customers will again return, lifting volume sales by c.20-25% off 1Q25’s low base. *Look for entry points again when the coast is clear.*
