rising tochallenges - fundamental analysis...world demand for rubber gloves grow at an average of 8%...

Growing Global

……………………………………………………………………………………………………………………………………………………………………………….. Innovation Quality1

Rising toChallenges

Growing Global


About us

Growing Global


Game changing products

Innovative

Growing Global


First in the world light weight nitrile glove changed the global market for glove

Invented the world’s first light weight nitrile glove in year 2005

Triggered a global switch from natural rubber to nitrile glove

Became the world’s largest nitrile glove manufacturer in year 2010, a position maintained until today

Caused an industry wide re-engineering towards nitrile glove production

Disruptive innovation

Growing Global


Most profitable glove manufacturer

Most advanced production lines at 45,000 pieces per hour with high degree of automation

Productivity measured as sales per employee is the highest in the sector

Most profitable and highest productivity

9%12%

15%12%

15% 14%10%

33%28% 29% 28%

24%21% 23%

0%

20%

2011 2012 2013 2014 2015 2016 1Q 2017

PBT margin

Sector's average Hartalega

199 214 225 207 231 247283

321279 291 273

319

2011 2012 2013 2014 2015 2016

Sales per employee (RM’000)

Sector's average Hartalega

Efficient

Growing Global


1,822 1,498

1,145 1,107

1,032 931

735 572

443 282

240 160

110

FY17FY16FY15FY14FY13FY12FY11FY10FY09FY08FY07FY06FY05 Revenue (RM mil)

CAGR for revenue for the last 12 years (from FY2005 to FY2017) of 26% - continuous growth

The only listed glove company to have consistent 12 years y-o-y growth

Experienced the highest revenue growth in the last 2 years contributed by NGC

Capacity more than doubled in the same period

12 years 26% CAGR made possible with sound management

High growth

Growing Global


Most valuable glove company with market capitalisation of RM11.3 billion as of 21st Jul 2017

Share price appreciated by 23 times from RM0.30 (IPO of RM1.80 adjusted for bonus issues) to current price of RM7.00

Hartalega commands a premium for its healthy financials, sales growth, innovation and productivity

463 606

1,987 1,9812,902

3,623

5,116

6,9347,959 8,139

11,260

Market capitalisation (RM mil)

Most valuable glove manufacturerMarket capitalization exceeding RM11 billion

Growing Global


Consistent growth in global consumption

Market outlook

64 6884 92 94 102110

122124140150148

160171180193

210232

251

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

f20

18f

Global consumption of rubber gloves (bil pcs)World demand for rubber gloves grow at an average of 8% to 10% per annum

Malaysia is the largest supplier of rubber gloves to the world – 63% market share

Demand for glove is inelastic, a basic necessity in healthcare and other sectors that require hand protection

Global consumption growth will continue stemming from increase from developing nations where existing per capita consumption is significantly lower than developed countries

Growing Global


335

273

216 208 208 193 190165 153 150 147 141 135 132 124

90 89 87 76 70 68 55 5231 21 19 6 4 3 1

Gloves per capita consumption (pieces)

Market statistics show big disparity in per capita consumption between developed and developing nations

Countries with low per capita consumption of gloves that have huge population and high GDP growth indicate big opportunities for demand growth for gloves

Market outlookAttractive opportunities in high growth and highly populated developing countries

Growing Global


Market outlookIndustry’s capacity expansion

1Hartalega Top Glove Kossan Supermax Total

Current capacity (mil pcs) 27,000 48,000 22,000 21,000

Expansion plans announced

2NGC 3 – 4.7 bil pcs (May-17)NGC 4 – 4.7 bil pcs (Apr-18)NGC 5 – 4.7 bil pcs (Apr-19)

F30 – 2.8 bil pcs (Jul-17)F31 – 3.0 bil pcs (Jan-18)F32 – 4.8 bil pcs (Dec-18)

Meru 1 – 3.0 bil pcs (Jul-17)Meru 2 – 4.5 bil pcs (2018)Meru 3 – 3.0 bil pcs (2018)

P10 – 2.2 bil pcs (Dec-17)P11 – 3.4 bil pcs (Dec-19)

3Estimated actual capacity realized in year 2017 (mil pcs)

6,071 2,422 1,935 704 11,132

3Estimated actual capacity realized in year 2018

4,819 4,654 4,383 2,693 16,549

10,890 7,076 6,318 3,297 27,581

1. Management is committed to maintaining a healthy supply and demand balance by taking cognitive measures to regulate our rate of expansion

2. NGC plant 3’s first production line started operation in October 2016, thereafter lines were progressively commissioned

3. Estimates are based on gestation period that takes progressive commissioning of production lines into consideration using Hartalega’s historicalexpansion project delivery schedule as basis of estimation

Growing Global


Market outlook

Malaysia Big Four Global demand

Supply and demand remains healthy

Global consumption projected to grow more than industry’s capacity expansion

Malaysia competitiveness relative to China in glove production has improved due to China’s government clamp down on environmental compliance

Rubber glove expected to take market share from PVC glove

PVC glove market size is about equal to rubber glove

Growing Global


NR42%

NBR, 58%

NR,49%NBR,

51%

NR,43%NBR,

57%

NR,40%

NBR, 60%

Year 2014 Year 2015 Year 2016 1Q2017

Malaysia’s Export of Rubber Gloves (source MREPC)

Market outlookNitrile glove export in Malaysia continues to grow

Growing Global


16 1517

15

19

14

Rubber Vinyl

USA import of rubber and vinyl gloves (bil pcs)

1Q15

1Q16

1Q17

52%

31%

11%

4%

51%

33%

11%

3%

48%

36%

11%

4%

China Malaysia Thailand Indonesia

Share of USA import of gloves (rubber and vinyl)

1Q15

1Q16

1Q17

+14% YoY

-3% YoY

Decline in import of gloves from China into USA

Factories in China were ordered to shut and/or carry out retrofits to meet environmental standardsMajority of gloves production in China are vinyl gloves

Ongoing Chinese Government’s policy and enforcement creates better opportunity for Malaysia gloves export growth

(source: MREPC) (source: MREPC)

Market outlookDecline in importation of gloves from China

Growing Global


69%

17%

10%

3%

71%

14%10%

3%

74%

13%9%

3%

0%

20%

40%

60%

80%

Malaysia Thailand China Indonesia

Share of USA import of gloves (nitrile and vinyl)

2015

2016

*2017

(source: MREPC)*Year 2017 figures are for the period of January to March only

USA is the biggest market for rubber glove demand taking up almost 35% of global market share

Malaysia is capturing market share at others’ expense due to its glove quality, competitive pricing and supply stability

Market outlookMalaysia’s market share increases

Growing Global


Nitrile & latex price are closely correlated as both are close substitute products for automotive industry

Nitrile raw material price is not closely correlated to crude oil price trendPrices fell sharply mid-2015 due to oversupply concerns but rose mid-2016 due to tight available supply & improved demand from vehicle sales before declining in Mar 2017Expect latex and nitrile raw material to remain at about the current level for the rest of 2017

020406080100120

0.00

4.00

8.00

12.00

Jan-

14

Feb-

14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb-

15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb-

16

Mar

-16

Apr

-16

May

-16

Jun-

16

Jul-1

6

Aug

-16

Sep

-16

Oct

-16

Nov

-16

Dec

-16

Jan-

17

Feb-

17

Mar

-17

Apr

-17

May

-17

Jun-

17

US

D/b

arre

l

Latex and nitrile raw material price trend

Latex (LHS) NBR (LHS) Crude Oil (RHS)

Market outlookStable raw material for the remaining year 2017

Growing Global


2005-2010• Disrupted the

glove industry with innovative light weight nitrile glove

2010• Anticipated

competitors to come into nitrile glove segment

2012• Unveiled NGC

as key to our master plan to tackle competition

2013• Acquired 112

acres land for NGC

2014• NGC started

its first production line

2017• How we fare?

Our strategyA master plan drawn up to tackle competition

Growing Global


Our strategy

RM1.3blnInvested at NGC to date

19%Revenue CAGRsince NGC was

announced2013 2017

2.6Workers per million pcs (per month) at NGC plants 1&2

92%

NGC’s overall equipment

effectiveness much higher than global gold standard of

85%

92% OEE

203%Increase in number

of customers2013 2017

100

203

What we have achieved to date

No1Still the largest nitrile glove manufacturer in

the world

Profit margin remains above

industry average

36Number of

production lines at NGCrunning above

45,000 pcs/hr

Growing Global


26 2629

27

2321

2321

26

1820 21 21

17 1714

1614

1QCY15 2QCY15 3QCY15 4QCY15 1QCY16 2QCY16 3QCY16 4QCY16 1QCY17

EBITDA margin (%)

HartalegaIndustry average

Our strategyMeasures in place to maintain above industry average margins

Improved 1QCY17 EBITDA margin on the back of greater competition and upsurge in raw material costEfforts to maintain margins at levels higher than industry’s average will continueImplementation of cost management, productivity improvement and waste reduction programsHeadcount reduction via lean manufacturing and further automationEngineering improvement programsNew capacity from higher productivity production lines at NGC will improve profitability

Growing Global


Intensified competition

Our strategy5 years 15% p.a. growth via capacity expansion

11,787 12,502

19,387 21,348

28,687 34,160

38,496 41,064 41,142

0

10,000

20,000

30,000

40,000

50,000

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22

Capacity projection

Growth via addition of new capacity through construction of new production linesTo date, 3 out of 6 plants at NGC are in full operationsFirst production line at NGC plant 4 will commence operation in August 2017Construction of NGC plant 5 will commence in August 2017Construction of NGC plant 6 will commence a year after (August 2018)Average growth of 15% p.a. for the next 5 years

rising tochallenges - fundamental analysis...world demand for rubber gloves grow at an average of 8%...

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