This article first appeared in The Edge Financial Daily on November 6, 2019

KUALA LUMPUR: No thanks to a lower average selling price (ASP) and increases in packaging and fuel costs, Hartalega Holdings Bhd experienced a 13% drop in net profit to RM103.87 million for the second financial quarter ended Sept 30, 2019 (2QFY20), from RM120.22 million a year ago.

The lower ASP dragged the group’s quarterly revenue marginally lower to RM709.42 million, from RM714.24 million for 2QFY19, the nitrile glove manufacturer’s exchange filing yesterday showed.

Despite the lower profitability, Hartalega’s board declared a first interim single-tier dividend of 1.8 sen per share in respect of FY20 ending March 31, 2020. The dividend is payable on Dec 27.

For the first half of FY20 (1HFY20), Hartalega’s net profit came in 19% lower at RM197.93 million, compared with RM245.09 million for the same period a year ago. Cumulative revenue, meanwhile, dropped 5.3% to RM1.35 billion, against RM1.42 billion for 2HFY19.

Hartalega in the filing said the group will continue with its Next Generation Complex (NGC) capacity expansion plans, in line with growing global rubber glove demand, besides taking steps to address rising operating cost.

“Plant 5 of the NGC facility was fully commissioned during the quarter. The first line of Plant 6 is expected to begin commissioning in the first quarter of 2020 and will have an annual installed capacity of 4.7 billion pieces.

“Plant 7, which has commenced construction, will cater to small orders, focus more on specialty products and have an annual installed capacity of 3.4 billion pieces.

“With the progressive commissioning of Plants 6 and 7, Hartalega’s annual installed capacity is expected to be increased from the current 36.6 billion to 44.7 billion pieces by FY22,” it explained.

The group added that it will also continue to embark on cost optimisation to mitigate potential margin pressure, besides intensifying investment in Industry 4.0 technologies to reduce dependency on manual labour and enhance operational effectiveness.

In the long run, Hartalega managing director Kuan Mun Leong said, the group expects positive contributions from its antimicrobial gloves (AMGs).

“We continued to see increasing market acceptance of our world-first non-leaching AMGs, which we recently launched in Shanghai, China. Plans are under way to introduce this product in other emerging markets and to secure approval from the [Food and] Drug Administration to enter the US market.

“While tough market conditions may persist, the group is positive on [its] long-term prospects as we continue to build on our strong capabilities and proven track record to ensure sustainable growth,” Kuan concluded.