HARTALEGA Holdings Bhd’s acquisition of a 24.5ha plot of land for RM158.3 mil in Sepang adjacent to its existing complex is deemed a positive by analysts, with the move allowing the glovemaker to further increase its production capacity.
“We are positive on this development as it would allow the group to take advantage of the surge in demand due to the Covid-19 pandemic,” said AmInvestment Bank analyst Nafisah Azmi.
The plot of land will form the group’s Next Generation Integrated Glove Manufacturing Complex (NGC) 1.5, which will comprise of four plants with 48 production lines in total, which would generate roughly 396,000 gloves per annum per line.
Nafisah also noted that, with the land located next to the existing NGC Sepang, where all the necessary infrastructure is readily available, the first production line could be completed within the next nine months.
The acquisition comes at a purchase consideration of RM60 per square foot, and this is deemed reasonable by the analysts.
“Our checks on property portals reveal that comparable listings in the vicinity range from RM40 to RM85 per square foot,” said Ta Securities analyst Tan Kong Jin.
Tan also noted that the acquisition will be funded via internally-generated funds or bank borrowings, and the analyst expects the group to remain in a net cash position.
Tan also noted that NGC 1.5 will bridge the one year gap between NGC 1.0 and NGC 2.0, where there would be no new capacity.
“NGC 1.0 is scheduled to be completed by 1Q21, which will increase total installed capacity to 44 billion gloves, while NGC 2.0 in Banting which will increase capacity by 32.3 billion gloves, is set to begin commissioning its first line towards 1Q22.”
“As such, we are positive on the acquisition of the Sepang land as it is expected to bridge the 1-year gap of no new capacity between NGC 1.0 and NGC 2.0. Moreover, this will allow the group to capture the surge in demand for medical gloves due to the Covid-19 pandemic,” said Tan.
The expectation is that Hartalega’s installed capacity will increase to 95 billion gloves by 2027.
TA Securities maintains its buy call on Hartalega as well as its target price of RM25.97. AmInvest maintains a hold call, but up its fair value to RM18.74 from a previous RM18.58.
“We continue to like Hartalega for its long-term prospects, underpinned by capacity expansion, product innovation and superior operating efficiencies. We believe the group
will benefit from the Covid-19 pandemic as demand for gloves outstrips supply.”
“However, we believe that the stock is fully valued with a price to earnings ratio of 50x FY22F earnings per share,” noted AmInvest’s Nafisah.
At the end of the morning’s trading, Hartalega’s shares were last done at RM18.62, up 26 sen, with 4.1 million shares traded. – Aug 11, 2020
