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1. In January 2025, the U.S. will implement a 50% tariff on Chinese medical gloves, with a potential increase to 100% in 2026. Under a Donald Trump administration, this tariff could be revised to 100% as early as 2025, which would benefit Hartalega as a competitive advantage.
2. Hartalega has shown a consistent increase in sales volume on a quarter-over-quarter basis.
3. The weakening Malaysian Ringgit is advantageous for Hartalega, enhancing its export competitiveness.
4. Under potential Donald Trump policies in the oil and gas sector, commodity prices are likely to decline. Lower oil prices would reduce the cost of butadiene, a key raw material for Hartalega, as well as energy costs from natural gas.
5. Hartalega’s strong management and leadership, combined with a commitment to innovation and R&D, position it as a market leader in the nitrile glove segment.
6. Hartalega holds a strong net cash position of RM1.3 billion.
7. The company has resumed dividend payments, further enhancing its appeal to investors.
8. The U.S. is expected to impose tariffs on Chinese glove producers, even if they relocate manufacturing operations to other countries, providing a favorable competitive landscape for Hartalega.
9. Demand growth for nitrile gloves is expected to outpace supply in Q1 2025.
10. Hartalega is recognized for its highly efficient production processes and lowest manufacturing costs in the industry.
Maybank Investment Bank (Maybank IB) has maintained its 'buy' rating for Hartalega Holdings Bhd (KL:HARTA) at RM3.19, with an unchanged target price (TP) of RM4.50, saying the average selling price (ASP) outlook is improving for the glove maker, as it fully passes on higher raw material costs to customers.
HART’s 2QFY25 core net profit of MYR30.8m (+14% YoY, -6% QoQ) was below
our and consensus estimates, primarily due to the sudden strengthening
of MYR against USD in July-Sep 2024. However, 2HFY25E earnings should
improve, driven by higher sales volume, increased ASP and stablising
USD/MYR rate. We revise our FY25-27E earnings forecasts by -13% to +41%
and TP to MYR4.31 (+3sen; on unchanged 3x CY26E P/B). BUY.
Hartalega
ESG 2.0: Defending an above
average scoring
MYR4.28 TP based on an unchanged 3x CY26E P/B peg. Reiterate BUY.
We revisit HART’s ESG disclosures post release of its FY24 Annual and
Corporate Governance Reports and have assigned an above average ESG
score of 64 (out of 100), which is higher than its previous ESG score of 61
when first introduced in FY22. We maintain our earnings forecasts and
MYR4.28 TP based on an unchanged 3x CY26E P/B peg. Reiterate BUY.
Some headwinds were noted…
HART's overall ESG score of 64 is above average, exceeding its sector peer,
Top Glove (TOP MK, HOLD, CP: MYR1.08, TP: MYR1.08), which is rated at
56 (above average). HART’s score experienced some drag from the rising
trend in carbon emissions and total waste generated intensity. Average
training hours per employee also decreased to 13 hours from 19 hours.
Additionally, despite a -31% reduction in Directors' remuneration, the
Board's salary as a percentage of core net profit increased to 11.6% due to
a lower core net profit arising from higher costs related to the
decommissioning of the Bestari Jaya facilities.
Hartalega (HART MK)
ESG 2.0: Defending an above
average scoring
ESG score improves, to 64/100; maintain BUY
We revisit HART’s ESG disclosures post release of its FY24 Annual and
Corporate Governance Reports and have assigned an above average ESG
score of 64 (out of 100), which is higher than its previous ESG score of 61
when first introduced in FY22. We maintain our earnings forecasts and
MYR4.28 TP based on an unchanged 3x CY26E P/B peg. Reiterate BUY.
Republican U.S. Senator Marco Rubio on Thursday proposed barring Chinese manufacturers from evading tariffs by setting up factories in other countries like Mexico, Vietnam or Malaysia.
Rubio accused Chinese manufacturers of shifting production to other countries that face lower U.S. tariffs, saying it allowed them "to evade tariffs and flood the U.S. market with cheap goods." A House committee raised concerns last week about a Chinese auto parts firm that may have sought to evade tariffs.
Malaysia Gloves Sector
Christmas comes earlier
Aboost to Malaysia glove makers competitiveness
We are pleasantly surprised by US' final USTR modifications on China
tariffs, which will raise tariffs on China-made medical and surgicat gloves
to 50% by 2025 and 100% by 2026 - well above the 25% proposed in May
2024. This increase will make Malaysia gloves relatively cheaper, boosting
their competitiveness in the US market. We maintain tactical POSITIVE on
the glove sector and expect earnings recovery in the next 12-15 months,
before additional capacity from China's overseas expansion picks up in
2026. Our top BUYs are HART and KRI. We U/G TOPG to a tactical BUY.
An unexpected positive development
We expect this latest development to make Malaysia gloves more
attractive in the US market. This market has been important for Malaysia
glove makers (TOPG: 15% of sales, HART: 50%), which have been losing market share to their Chinese counterparts since 2021 due to intense price
competition. While there is a risk that China glove makers may shift their
focus to the European market (TOPG: 35% of sales, HART: 25%), we believe Malaysia glove makers could offset the loss of their market share in Europe
with stronger sales in the US.
USTR Raised China Surgical Gloves Tariffs to 50-100%☄️
? In a 105-pages official announcement just released?, the Office of the United States Trade Representative (USTR) announced final modifications on the statutory review of earlier tariff actions on China.
? This is an update from earlier proposed modifications announced in May 2024.
? Key updates are on?: new timing and tariffs rates on face masks, medical gloves, needles, and syringes. Also includes: i) a proposal regarding coverage of additional tungsten, wafers, and polysilicon tariff lines; ii) an exclusion for ship-to-shore cranes ordered prior to May 2024; iii) an expansion of the scope of the machinery exclusions process; iv) and modification of the coverage of proposed exclusions for solar manufacturing equipment.
? To recall back in May, US increases higher tariff of 25% (from current 7.5%)?? on China’s rubber medical and surgical gloves’ exports beginning 2026.
? The tariffs on China medical gloves are now raised ? to 50% in 2025, and 100% in 2026. Refer to page 18-19 of the ? under medical gloves segment, “_The U.S. Trade Representative has determined to increase the rate of additional duties on medical gloves to 50 percent in 2025 and to 100 percent in 2026._”
