KUALA LUMPUR (Sept 5): Global demand for rubber gloves may only recover in the second half of next year at the earliest, said Hartalega Holdings Bhd, which is still bracing for industry-wide headwinds caused by an acute oversupply.
According to its chief executive officer Kuan Mun Leong, the utilisation rate of its production lines is currently hovering between the 40% and 50% level, given market demand for gloves remains “depressed”.
With margin compression due to low average selling prices (ASP) and utilisation rate, the group, which suffered a net loss for three consecutive quarters, does not expect a turnaround in its financial year ending March 31, 2024 (FY2024).
“For this year, the year 2023, we do not see an uptick in demand because of this ongoing phenomenon... For guidance, I think the following quarters will still be challenging as we have mentioned the demand is still very depressed at the moment.
“We expect demand to recover towards the second half of 2024. So from here to then, it will still be changing,” Mun Leong told reporters during a press conference following its annual general meeting.
However, he believed that the glove demand is at the bottom. The recovery will be driven by the resumption of re-stocking activities as stockpiles caused by panic buying during the Covid-19 pandemic expire, he said.
Similarly, the group cautioned that ASP for gloves will only recover after the demand for gloves picks up, albeit at a gradual pace.
Until then, the group’s glove ASP will remain low due to purchase volume also being at a low level, said Hartalega’s chief business officer Kuan Mun Keng.
“For the ASP to revive, the volume needs to come in first. Meaning the excess stocks has to be depleted first,” Mun Keong noted.
The group’s glove ASP was at around US$20 per 1,000 pieces at the end of June this year, compared to China players’ US$14. Malaysian glove players' glove ASP are currently around US$16.
Nonetheless, owing to the geopolitical tensions, Mun Leong said Malaysian glove manufacturers, being the world’s leading glove suppliers, will remain a buying destination for buyers.
In view of the challenging operating environment in the glove industry, Hartalega is looking to diversify its business.
“We are in healthcare, for sure we are interested in businesses within the healthcare industry. At this point in time we don't have anything serious in sight yet, but we are looking. We are extremely prudent and careful when we look at investment. It has to be very accretive to the core business.
"We have a cash pile of RM1.6 billion and we are again very, very careful, very, very selective in how we use the cash,” said Mun Leong.
For the first quarter ended June 30, 2023 (1QFY2024), Hartalega posted a net loss of RM52.47 million versus a net profit of RM88.28 million a year earlier as revenue for the period halved to RM440.04 million from RM845.67 million previously.
Loss per share was 1.54 sen compared to earnings per share of 2.58 sen previously.
On a quarter-on-quarter basis, net loss narrowed from RM302.76 million on the back of revenue of RM515.74 million in 4QFY2023. Prior to that, it recorded a net loss of RM31.91 million in 3QFY2023.
Shares of Hartalega settled up one sen or 0.51% at RM1.98, giving it a market capitalisation of RM6.78 billion.