KUALA LUMPUR: PublicInvest is 'neutral' on Hartalega Holdings Bhd for the interim on expectations of flat earnings in financial year 2015.
"We visited Hartalega‟s iconic Next Generation Integrated Rubber Glove Complex (NGC) development recently with very positive reviews. The site boasts 44.8ha of land area, costing RM19.84 per square foot, housing a 17-acre lake which has sufficient water reserves of up to 3 weeks.
"A well-planned development, the infrastructures of the NGC encompasses all aspects of the rubber glove manufacturing process from raw materials storage to finished goods logistics.
"Some of NGC‟s main features include, massive storage and chemical warehouses, a Research and Development centre, training centre, sports complex and 5,000-persons living quarters for its workers.
"NGC will begin commissioning end-October/early November this year, with its Plant 1 and 2 to be fully commissioned by fourth quarter of 2015. To recap, NGC plants are targeted to complete by 2020, and will be home to 28.5 billion pieces per annum capacity with utilisation of 88 per cent," said PublicInvest in its report.
The research house said when Plant 1 begins commissioning by end-October/ early November, an addition of 2 lines will be installed every 1.5 months.
"Both Plant 1 and 2 will be built concurrently to mitigate any delays resulting from the prolonged approvals during the set-up phase of the utilities infrastructure.
"Plants 1 and 2 are targeted to be in full commission with 12 lines each by fourth quarter of 2015, with 394 million pieces per annum per line. The 6 storage warehouses will be constructed simultaneously to cater for the respective plants, with 3 chemical warehouses to be shared between 2 plants.
"Capex for the completed project is estimated to be RM1.5 billion to RM2.2 billion, which translates to RM200 million per plant."
PublicInvest said benefits through cost savings, include the new production lines will run at speeds of more than 45,000 piece per hour from higher specification lines.
"This coupled with further automation, increasing its overall average line capacity from 28,000 pieces per hour to 40,000 piece per hour.
"The number of labour will be maintained at 4,000 to 5,000 workers, but to produce 28.5 billion pieces per annum of gloves versus 3,900 workers to produce 14 billion pieces per annum currently. Energy resources and utilities infrastructure to ensure uninterrupted operations with substantial savings."
PublicInvest is maintaining its 'neutral' call as it expects financial year 2015 forward earnings to remain flat considering the higher cost impact from the NGC development expected in second half of financial year 2015.
"We have thus adjusted our earnings for financial year 2015 forward by -10 per cent, but going forward in financial year 2016 forward onwards, earnings will be enhanced considerably from the full commissioning of Plant 1 and 2 lines. This is further supported by its capacity to be fully sold and management's initiatives to fine-tune costs."