Overview of Hartalega

Hartalega (“HHB”), the world’s largest synthetic rubber glove manufacturer, was founded in 1988 by the Kuan family and operates from its multi-factory site of 33 acres in Bestari Jaya in Batang Berjuntai Selangor. Today, HHB is a second generation-managed public listed company helmed by Kuan Mun Leong as Deputy Managing Director and Kuan Mun Keng as Finance and Sales Director and overseen by its founder and Managing Director Kuan Kam Hon (please see the Annual Financial Reports for their profiles). HHB is a hands-on managed and focused company with a lean management structure of 20 managers and 3,000 factory workers.

HHB exports all its rubber glove products especially nitrile examination rubber gloves (90% of sales is nitrile rubber gloves with the balance as natural latex rubber gloves) to over 130 customers in 39 countries predominantly to quality demanding countries like USA, Germany and Japan. In addition to being the major OEM exporter to major medical distributors like Medline Industries Inc and Paul Hartmann AG, HHB had also incorporated marketing subsidiaries like Pharmatex operating retail distribution centres in USA, Australia and China with India set to open in the second half of 2012.

Hartalega Holdings Berhad was listed on April 17 2008 at the IPO price of RM1.80 on the Bursa Malaysia Main Board Industrial Sector under the stock abbreviation “HARTA” and stock code “5168”. HHB is the designated listed corporate vehicle and parent company for the Hartalega Group of companies comprising Hartalega Sdn Bhd (manufacturing subsidiary), Hartalega NGC Sdn Bhd (new manufacturing subsidiary), Sentinel Engineering Sdn Bhd (engineering research subsidiary) and Pharmatex Sdn Bhd (retailing subsidiary).

Assuming current share price of RM8.00, the shares have grown over 7 times since listing (adjusted for a 1 for 2 bonus issue completed in 2010). The shares, classified as trustee stock, due to its consistently high quarterly dividend pay-outs is a firm favourite of fund managers: HHB shares have the unique dual distinction of being a growth stock with solid fundamentals and high dividend yield with dividend pay-out policy of minimum 45% of net earnings. HHB also prides itself in its solid growth fundamentals having the highest financial returns (profit and profit margins, ROE, ROI and ROA are double the industry average) in the industry and maintaining a compounded annual growth rate of 37% for its top line and 56% for its bottom line since listing in 2008. In short, HHB is the world’s most profitable rubber glove company at gross profits of RM296 million (FYE 2012).

Presently, HHB has implemented its 1:1 bonus issue cum 1:5 free warrants exercise to improve share trading liquidity and reward loyal shareholders.

The paid up capital of HHB comprises RM182.5 million of 0.50 cents par value shares (FYE 2011) with principal shareholder as Hartalega Industries Sdn Bhd (56%). About 15 percent of the shares are held by foreigners and the free float is about 26%. The PE multiple of HHB hovers around 14 to 17 times which is within range of rubber glove industry PE multiple average of 14 times and the Malaysian stock exchange (Bursa Malaysia) average PE multiple of 13.5 times.

HHB is the most technologically advanced rubber glove manufacturer in the world – 2004 was the milestone year of beginning revenue acceleration for Hartalega when it introduced the world’s first lightweight thin-gauge nitrile glove in 2004 after three years of meticulous research beginning 2002. The blue ocean strategy enabled HHB to change the landscape of global glove market spurring a switching momentum from latex rubber gloves to nitrile rubber gloves which continues unabated till today.

The burgeoning market demand for synthetic rubber gloves arising from HHB’s in-house innovation ie thin gauge nitrile rubber gloves provided the impetus for HHB to overtake Kimberly Clark and Yule Catto to become the global market leader in nitrile rubber gloves since 2010: HHB has grown its market share of US nitrile gloves from 2% to 23% in 8 years and commands 15% of global nitrile rubber glove market.

Besides the landmark invention of thin gauge nitrile rubber gloves, HHB has also introduced to the world high stress tension nitrile rubber gloves, accelerator free nitrile gloves, anti-bacteria nitrile gloves and a host of new product innovations currently under work in process – the Hartalega Group has accumulated a wealth of R&D expertise, business networking experience and industry knowledge in nitrile rubber glove since its venture into nitrile in 1995.

HHB prides itself in its strong R&D culture having a penchant and forte for product and process innovation. The embedded innovation culture, so endearing to the heart and passion of the founder, created the foundation for captive in-house engineering expertise and technological competence which resulted in process innovations like the patented double former mounting, glove stripping robot, robot arm simulator and glove stacker which together have contributed towards making the fastest production lines in the industry running at 45,000 pieces per line per hour. This is almost double our peer’s fastest production line running at 25,000 pieces per line per hour.

The captive in-house engineering expertise has also resulted in HHB becoming the industry leader in worker efficiency with productivity figures of RM306,000 sales per worker per annum outpacing the industry norm of RM200,000 sales per worker per annum. With two process innovations due to be implemented within the next two years coupled with economies of scale arising from capacity expansion, the productivity figures could eventually escalate to an unprecedented record of RM516,000 sales per worker per annum which is more than double industry norms.

HHB has won countless awards for its innovation, best managed company and factory in the country – the awards courtesy of Forbes, KPMG and Asia Money are internationally recognized and worthy of mention here.

Rubber gloves particularly for the healthcare sector are widely regarded as necessity consumables and recession-proof products – empirical evidence suggested that in spite of the negative impact of the 2008 US economic crisis and European debt crisis 2010, Malaysian export of rubber gloves grew from 32 billion pieces (2009) to 36 billion pieces (2010) and to 37 billion pieces (2011) mainly to US and Europe markets.

HHB has the capacity to provide a wide range of rubber gloves catering to various sectors of industry but its specialty product and niche market is nitrile rubber examination gloves for the healthcare sector – strong switching momentum from latex to nitrile rubber gloves has seen demand for synthetic rubber gloves grew at the rate of 29% last year (2011). The synthetic to natural latex rubber glove ratio is now at 40:60 as compared to 2008’s 20:80 (see Malaysian Rubber Export Promotion Council’s Malaysian Export Performance Annual Reports 2008-2011) and the ratio is expected to enlarge further in favour of synthetic rubber gloves at the expense of natural latex rubber gloves.

After years of in-house market intelligence observing feedback and market trends on the global demand for nitrile rubber gloves, HHB made the landmark decision in 2012 to embark on an ambitious capacity expansion project combining a comprehensive manufacturing complex with dedicated building facilities called HNGC or acronym for “Hartalega Next Generation integrated manufacturing Complex”. To this end, HHB incorporated a wholly owned subsidiary, Hartalega NGC

Sdn Bhd (“HNGC”) on 29th March 2012 as the designated corporate vehicle to facilitate the implementation of the HNGC project.

The HNGC project is scheduled to begin in 2013 and targeted to complete in year 2021.

The total project costing RM1.5 billion and consisting of 72 new high tech production lines was accorded the EPP (“Entry Point Project”) status under the Malaysian Government’s Economic Transformation Programme due to its high economic impact.

The project will be housed within a new site of 112 acres in Sepang Selangor and linked to several dedicated buildings to be built notably:

Research & Development Centre Learning & Development Centre

Renewable Energy Plant

Environment Friendly Worker Quarters

Sports and Recreation Centre

The whole location will be a showcase landscaped to be green and eco-friendly incorporating lush greenery with investment in environmental preservation mechanisms like water and waste treatment plants.

The HNGC project will be spread over two 4-year phases and employ about 4,600 workers:

First Phase (2013 to 2017) – 40 production lines with total annual capacity of 14 billion Second Phase (2017 to 2021) – 30 production lines with total annual capacity of 10.5 billion

On completion of the HNGC project, the total installed production capacity of the HHB Group including the current factories in Bestari Jaya will be 38 billion pieces per annum. The HNGC project will eventually propel Hartalega to the multi-billion Ringgit top line and bottom line stratosphere, almost quadrupling capacity, and reinforcing its incumbency as the global market leader in nitrile rubber gloves.

Finally, our company prides itself not so much in its capacity expansion aspirations but in being a technologically driven company constantly seeking new innovations to carve market niches and to improve productivity and cost efficiency.

For further information, please see http://www.hartalega.com.my and read Hartalega’s Annual Financial Reports.