Hartalega net profit down on lower prices

KUALA LUMPUR: Hartalega Holdings Bhd’s net profit was lower at RM49.1mil in the fourth quarter ended March 31 against RM62.2mil previously due to a reduction in average selling prices (ASP), among others.

The glove manufacturer said its operating profit margins reduced from 29.5% to 23.9% due to a reduction in the average selling price, higher staff cost due to recruitment for the Next Generation Integrated Glove Manufacturing Complex (NGC) project, and an increase in electricity and maintenance costs.

However, revenue for the quarter under review grew 3.9% to RM280.4mil compared with RM267.8mil in the preceding quarter, as a result of the group’s continuous expansion in production capacity as well as an increase in demand.

Hartalega’s board declared a third single-tier interim dividend of 3.5 sen per share in respect of the financial year ended March 31, 2014 (FY14), payable on June 18.

For FY14, Hartalega posted a net profit of RM233.2mil, or 31.44 sen earnings per share, on a revenue of RM1.1bil.

In a statement, managing director Kuan Mun Leong said its results were “in line with expectations,” given the downward pressure on ASP due to intensified competition.

Despite this, Kuan said the company was confident that it would be able to maintain its position as a profitable manufacturer focused on value creation for its shareholders.

“This is all the more evident with our expansion plans and our technological innovation.

“To this end, our NGC is well under way with the construction of plant 1 and 2 along with supporting facilities.

“We are on track to commission our first production line in the fourth quarter of this calendar year, with subsequent production lines to come on-stream progressively. At the same time, we continue to pour resources into developing our human capital to ensure we have a capable team to drive the group forward,” Kuan said.

Commenting on its prospects, Hartalega said the global demand for nitrile rubber gloves continued to grow at a high rate of over 19% due mainly to switching momentum from latex to nitrile rubber gloves. It said this had spurred an increase in nitrile capacity by the industry, which Hartalega was confident would be more than matched by a strong nitrile glove demand.

“Furthermore, we do not expect a price war as claimed by certain quarters, as global demand growth continues to be strong. However, ASP will be lower from declining raw material prices and more competitive product selling prices. The lower selling price and sustaining demand will support efforts to open new markets,” Hartalega said in the notes accompanying its financial results.

It added that although the company was concerned that the lower ASP continued to impact Hartalega’s top and bottom lines, the timing of the incoming NGC capacity should sustain the group’s earnings.

“On the back of strong demand for nitrile gloves, we are confident that Hartalega’s profit margins will remain above the industry average,” it said.