Founded in 1988, Hartalega is primarily an original equipment manufacturer (OEM) of gloves, exporting its products to distributors, importers, and brand owners in over 70 countries. In FY2024, North America and Europe accounted for 48% and 22% of Hartalega’s sales, respectively.
After reaching unprecedented financial and share price peaks during the pandemic, glove companies like Hartalega have been facing challenges due to a prolonged oversupply in the glove market. When will the situation normalize? Here are 10 key takeaways from the 2024 Hartalega AGM.
1. Revenue dropped 23.7% year-on-year to RM1.8 billion in FY2024 because of lower sales volume and average selling prices of gloves. As a result, operating margins were still compressed.
Despite rising operating costs amid the inflationary environment, the company recorded a net profit of RM12.5 million in FY2024 compared to a net loss of RM235.1 million in FY2023. It was affected by a one-off impairment amounting to RM347 million in FY2o23 as it decommissioned its Bestari Jaya facility. The company is looking to dispose of its Bestari Jaya facilities that currently incur minimal operating costs including security and maintenance expenses at RM1 million per month.
The glove maker distributed 0.35 sen dividend per share in FY2024 and continues to uphold its 60% dividend payout policy.
2. Global glove demand in 2023 remained below 2019 levels due to excess supply, reduced demand, and intense regional and domestic competition. The market has taken years to absorb the surplus stock. Malaysian glove manufacturers have also been losing market share to Chinese competitors, who can offer lower prices, largely because of their lower energy costs.
The silver lining is that domestic manufacturers have rationalised their capacity while smaller players have left the industry. This has helped to mitigate the oversupply issue in the market. Glove average selling prices (ASPs) have stabilized, recently hovering around USD 20-21 per 1,000 pieces.
Glove consumption has historically grown at a steady compound annual growth rate of 6-8%, a trend that is expected to continue. The management is confident that the company will outpace industry growth. Glove demand is projected to exceed 300 billion pieces in 2024 and is anticipated to return to normal levels by 2026.
3. Hartalega’s installed capacity reduced from 44 billion to 32 billion pieces per year following the closure of its Bestari Jaya facilities. Similarly, its glove sales volume declined from 3.3 billion pieces per month to now between 2.2 and 2.5 billion pieces per month.
Its installed capacity is expected to increase to 37 billion pieces upon the phased completion of Next Generation Integrated Glove Manufacturing Complex (NGC) 1.5 by 2025, in line with improving glove demand and depleting stockpiles. The consolidation of all its production facilities at the NGC in Sepang, Selangor has resulted in higher cost efficiencies. Utilisation rates have risen from 40-50% to above 80% in Q1 FY2025, compared to some peers at around 30%. As a result, the company reported better year-on-year results in the latest quarter.
4. In FY2024, Hartalega incurred RM167 million in capital expenditure for its NGC 1.5 expansion project, along with ongoing digitalization and automation initiatives. For example, the company uses AI in its digital imaging system to identify and remove defective gloves. Management anticipates spending an additional RM232 million in FY2025 to further expand NGC 1.5. The new NGC 1.5 production lines can operate 15% faster than the existing NGC plants, enhancing overall efficiency.
5. The export-oriented company faced additional headwinds as the Malaysia ringgit strengthened sharply against the U.S. dollar recently. Most of Hartalega’s glove sales are denominated in U.S. dollars while the company reports its financials in ringgit. The company adopts a foreign hedging policy by hedging most of its dollar-denominated sales and provides receivable days of up to 90 days. It passes on the exchange rate differences to its customers and most of its sales are on a contract basis.
6. Amid U.S.-China geopolitical tensions, Hartalega could benefit from the significant increase in U.S. tariffs on Chinese gloves, which are set to rise from 7.5% to 25.0% in 2026. This shift may prompt glove buyers to diversify their sources, reducing reliance on Chinese manufacturers. However, according to Executive Chairman Kuan Kam Hon, Chinese glove producers are likely to respond by targeting other markets, which could create additional competition in the region for Hartalega.
7. Hartalega entered into a sales and purchase agreement to purchase a piece of land amounting to RM54.3 million in the Delapan Special Border Economic Zone in Kedah, Malaysia in 2022 during the peak of the pandemic. Given the significant changes in market conditions post-pandemic, Hartalega is not rushing to finalize the transaction or dispose of the land. The company recognizes the land’s strategic value due to its proximity to Thailand and Penang Port, making it attractive for data centers and industrial parks.
8. Hartalega’s key cost components are raw materials, energy, and labour costs. CEO Kuan Mun Leong noted that the company uses its business scale to secure raw materials at competitive prices. To improve production yield and plant productivity, the management focuses on managing and reducing energy consumption, with digitalization playing a crucial role. Most production lines have been automated, except for packing, to mitigate rising labor costs and reduce dependence on manual labour.
9. The company is well-positioned to weather economic downturns, holding a net cash position of RM1.4 billion in FY2024. Management is diversifying into the F&B and manufacturing sectors and expanding into own-brand manufacturing, which offers higher margins. This shift reduces their reliance on the healthcare sector, which currently accounts for over 90% of revenue. Additionally, Hartalega holds a dominant 70% market share of public hospital contracts in Australia, further strengthening its market position.
10. Minority Shareholder Watch Group highlighted a 65.9% year-on-year increase in inventories to RM385.6 million in FY2024. The chief business officer attributed the increase in inventory levels to higher glove demand as well as the Red Sea Crisis that caused delays in glove shipments. The increased inventory is not expected to become obsolete, as it will be shipped out in due course.
The fifth perspective
The post-pandemic glove industry has undergone significant transformation, and its recovery has been uneven. Hartalega’s economic moat, built on economies of scale, has been eroded by intense competition from Chinese players. The industry’s lingering challenges have left Hartalega and its peers largely at the mercy of market recovery. Despite these external factors, the company remains committed to maintaining its leadership position through quality, reliability, innovation, integrity, consistency, and on-time delivery.
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