Figure 1: Hartalega’s state of the art Next Generation Integrated Glove Manufacturing Complex (NGC) plants located in Sepang, Selangor.

Hartalega Holdings Berhad, an investment holding company, engages in the manufacture, retail, and wholesale of latex and nitrile gloves in Malaysia, Asia, North America, South America, Europe, Australia, the Middle East, and Russia. The company offers its products for industrial, healthcare, laboratory, and food markets. It is also involved in the leasing of properties; research and development of automation systems; and export and trading of medical products. The company was founded in 1988 and is based in Kuala Lumpur, Malaysia.

On the 10th of September 2019, Hartalega Holdings Berhad held their 13th Annual General Meeting (AGM) in Kuala Lumpur. We have been visiting the directors at this meeting yearly for the past 3 years and this will be our 4th year visiting them. Here are our 5 key takeaways from the AGM this year.

Figure 2: VIC Community group photo taken with Mr Kuan Kam Hon, founder of Hartalega Holdings Berhad during 13th AGM held in Kuala Lumpur.

1. Hartalega’s State of the Art Next Generation Integrated Glove Manufacturing Complex (NGC) set for next stage of Growth

Hartalega is still on a growth path. With the global glove industry growing by at least 8% pear year, the company targets annual growth rates to be by about 10% per year for the near future. In order to do this, the company simply needs to set up and operate more glove production lines. Currently, the company has 5 Next Generation Integrated Glove Manufacturing Complex (NGC) plants in operation. The company targets to commence the operation of plant 6 in Quarter 1 of 2020 and plant 7 around the 2nd half of 2020. Once the NGC plans are completed, the company will start their next phase of growth called NGC 2.0 where they will simply source for more land to open up more plants.

Figure 3: Growth in global glove consumption (courtesy of Hartalega’s AGM presentation).

2. Development of new Product – Antimicrobial Gloves (AMG)

Hartalega’s latest product called the Antimicrobial Gloves (AMG) are currently the most advanced gloves in the industry. The company has high hopes for the AMG gloves and that it will set a new benchmark and standard for the rest of the industry to follow. The gloves are currently awaiting FDA approval to be sold in huge scale to North America. To date, the company has shipped these gloves to 20 countries around the world except the US. In terms of pricing, the company aims to make these gloves affordable for the mass market rather than pricing out smaller customers. The technology is currently awarded a 20 year patent and even though the patent is fresh, the company has already begun improving on that technology.

Figure 4: Hartalega’s Antimicrobial gloves.

3. How Hartalega maintained its Competitive Edge

Hartalega’s have 2 methods to remain ahead of their competition: Technology and efficiency. On the technological front, Hartalega have extreme focus on one product alone: Nitrile gloves. The company has been constantly improving the qualities of their products until they are currently highly superior compared to their competition. Since all the glove players in the industry priced their products similarly, with Hartalega’s superior quality, their gloves are highly sought after. Therefore, whenever there is high demand, Hartalega’s gloves will be gobbled up quickly by their customers causing them to run their factories at near maximum operating capacity all the time. On the efficiency front, Hartalega is implementing latest technologies rapidly in their factories to make their operations as lean as possible. Currently they are the only glove company with a fully integrated Enterprise Resource Planning (ERP) system technology which gives them total visibility of critical business parameters that are not available to them in the past. Their factories are also IoT ready. This is why Hartalega is constantly able to produce higher profit margins compared to their peers despite a very competitive market.

Figure 5: Hartalega is the only glove company with a fully integrated Enterprise Resource Planning (ERP) system technology.

4. Facing Headwinds in China and India Expansion

Hartalega is currently struggling to produce meaningful results in China and India. The reason behind this is because healthcare regulations are not as strict in these countries rather than in the highly developed countries like the US. In the US, doctors would change gloves every time they see the next patient. In 3rd world countries, doctors do not necessarily do that. This caused the consumption of gloves to be lower compared to that in the US and Europe. Hartalega markets their own brand called “Glove On” in these markets. But they are currently experimenting manufacturing for other brands in China.

Figure 6: Healthcare regulations are not as strict in India & China compared to developed countries such as the US.

5. China – US Trade War being “double-edged” sword to Hartalega’s business

The trade war has brought both good and bad effects to Hartalega. On the good side, US glove purchasers are avoiding sourcing their gloves from China due to increased tariffs. This will give Hartalega an opportunity to claim new market share from other Chinese glove manufacturers. On the other hand, glove manufacturers in China ever since receiving lower sales from the US now focused their efforts on other countries outside the US. One of Hartalega’s main goal is to diversify their markets outside the US and with the Chinese focusing their efforts on other countries as well, this has intensified competition.

Figure 7: The trade war has brought good and bad effects to Hartalega.

These 5 key takeaways from Hartalega’s AGM has given shareholders no doubt that the based on how the management has managed the company and presented candidly, they are highly experienced and capable of running this wonderful company. Despite all the unforeseen external factors in the global geopolitical and economy, Hartalega’s management as always is unperturbed by these circumstances.  Ultimately, we opined that Hartalega definitely has a bright future ahead.

Disclaimer: All facts and opinions presented are for educational purposes only. This is not a recommendation to buy or to sell. The author involved in the writing of this message has no vested interest in the companies. Please consult a professional for expert financial or other assistance or legal advice.

This article was written by Team VIC
Team VIC is formed by experienced and well-trained individuals from Value Investing College (VIC). The team has been consistently studying the latest stocks market trend in order to focus on educating the layman on investment principles and techniques.

No Comments

Be the first to comment on this article!


Write a comment

Submit

Related articles

Retirement Planning vs. Reality

On average, you need RM1 million to retire comfortably in Malaysia.

Would The Share Price Tell You Anything About A Business?

Understand the things behind a business because price doesn't determine the real value of...