Sunday 19 May 2024
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KUALA LUMPUR (May 8): Hartalega Holdings Bhd’s plan to decommission its Bestari Jaya production facility to weather through tough market landscape confirms that the downturn is likely to prolong in the glove industry. 

That news has triggered some selling pressures on glove stocks on Bursa Malaysia.

Hartalega fell as much as 8.1% to an intraday low of RM1.81 following the announcement, before paring losses to close at RM1.87, down 10 sen or 5.1% on Monday (May 8), valuing it at RM6.41 billion.

Top Glove Corp Bhd dropped 6.5 sen or 6.44% to 94.5 sen, giving it a market capitalisation of RM7.76 billion.

Year-to-date, shares of both glove producers still recorded a gain of 4.4% for Top Glove and 10% for Hartalega due to the rebound in share price in the first quarter.

Supermax Corp Bhd lost four sen or 4.44% to 86 sen on Monday, while Kossan Rubber Industries Bhd closed unchanged at RM1.22.

Although the decommissioning of Bestari Jaya production facility would result in jobs cut, Hartalega said it will allow it to consolidate production to its Next Generation Integrated Glove Manufacturing Complex (NGC) facility in Sepang, which production lines are equipped with more advanced and efficient technology.

Citi Research noted that the move to decommission a sizable portion of its capacity suggests that Hartalega does not see demand picking up in a big way in the near-term, adding that the chunky impairment charge will weigh on the group’s fourth quarter earnings. 

However, the research outfit commented that the exercise makes sense and is timely amid the challenging operating landscape. “In the medium- to long run, a supply-side rationalisation is also key for the current demand-supply imbalance to reverse.”

When contacted, Inter-Pacific Securities Sdn Bhd analyst David Lai Yoon Hui opined that it is customary for glove producers to practise lean manufacturing processes.

“Maximising efficiency and cost cutting has always been the company’s DNA. Decommission the plant will assist in cost control and reallocate its asset to [a] centralised manufacturing hub. Other glove players do practice decommissioning in the previous boom and bust cycle,” he told The Edge.

The glove sector, once the darling of the stock market during the peak of the pandemic, has been struggling operationally as the world demand normalises while additional new capacity is coming onstream globally, and that led to margin squeeze amid rising raw material prices.

Most glovemakers have taken steps to rationalise their aggressive expansion plans, as expansion by peers in China worsen the supply and demand dynamic in the industry.

Top Glove, for one, had decided to let its Hong Kong initial public offering application to lapse last year, a fundraising round originally planned to finance the group’s expansion and tap market demand from China.

Edited ByKathy Fong
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