KUALA LUMPUR (Oct 9): Hartalega Holdings Bhd said it is eyeing mergers and acquisitions (M&A) in a planned diversification which will see the company explore opportunities to mitigate risks of being just an original equipment manufacturer (OEM) producer of gloves with plants only in Malaysia.
Hartalega said it plans to diversify its customer base to reduce concentration risks and at the same time maintain a healthy “cash cow” and invest in the future growth of the company, which manufactures gloves at its factories within Selangor’s Sepang and Bestari Jaya enclaves.
“[Hartalega has a] healthy balance sheet and strong war chest to support key long-term business objectives moving forward,” the rubber glove maker said in its latest corporate presentation.
According to Hartalega, its strategic initiatives include its original brand manufacturer (OBM) strategy "to build a regional multiple medical device distribution company focusing on markets in Asia Pacific".
Hartalega, however, did not specify the list of medical devices the group intends to distribute.
In business terminology, the term OEM refers to a firm whose products are used as components in the finished products of another company.
Meanwhile, the term OBM refers to a company which has proprietary rights over certain products and brands.
Hartalega said on its website that the company has a current annual glove production capacity of 44 billion pieces and that its targeted production capacity is 95 billion pieces of gloves annually.
According to Hartalega’s latest balance sheet filed with Bursa Malaysia on Aug 9, Hartalega had cash and cash equivalents amounting to RM2.04 billion as at June 30, 2022 compared to RM2.38 billion as at March 31, 2022.
Looking back, Hartalega said in its corporate presentation that in 2020 and 2021, the world imported approximately 131 billion pieces more gloves than the normal consumption due to Covid-19 pandemic-driven demand for gloves, which are deemed a crucial personal protective equipment to curb the spread of the pandemic.
The situation now is different due to Covid-19 vaccine progress which leads to optimism that the pandemic can be curbed.
Hartalega said, "The over-purchases (of gloves) will need to be depleted over time, resulting in current lower buyers’ demand.”
This leads to the question on how long the “adjustment period post-pandemic surge [in glove demand]” will be.
"How long? The adjustment period is also influenced by various external factors e.g. geopolitical climate, industry peers expansion discipline, pandemic cycles etc.
“[The] silver lining [is] all key players [in the glove manufacturing industry] have publicly announced various forms of suspension or cancellation to their original expansion plans,” said Hartalega, which sees strong headwinds for the sector as market competition continues amid rising costs.
"Continued strong market competition and excess capacities from major players capped upward trajectory for ASP (average selling price).
"Global inflationary pressure resulted in higher operating costs environment [on] higher energy costs and increased labour cost,” the company said.
At Bursa on Friday (Oct 7), Hartalega’s share price closed down 11 sen or 6.11% at RM1.69 for a market value of about RM5.78 billion with 24.93 million shares traded.
Hartalega has 3.42 billion outstanding shares, according to the company’s latest annual report.