This week, we went on a field trip organised by the Yale-NUS Investment Mastermind Club and The Fifth Person, to visit Hartalega Holdings Berhad in Sepang, Malaysia. Hartalega Holdings Bhd is currently the world largest producer and exporter of Nitrile gloves, owning about 18% of the global nitrile glove production.
We went to visit its newest but partially finished factory, which costed about RM2.0 billion to build in Sepang, Malaysia, to better understand both the company and the gloves industry.
Here are the top 5 things we learnt from the trip.
- Although the factory is only partially done, it already has 12 production line running 24 hours a day. Each line is able to produce 46,000 pieces of glove an hour. That means, the factory is able to produce 13.25 million pieces of gloves a day, about 4.8 billion pieces of gloves a year. The factory is only partially complete and Hartalega has more than 1 factory, and they only control 6% of the global latex and nitrile glove market. Talk about a commodity product.
- The process of the glove manufacturing process is relatively simple, which mainly includes cleaning, dipping and drying. However, efficiency in the process is key to bringing the cost of production down and thus giving a company an advantage over its competitors. Hartalega Holdings has been actively engaging in making its process more efficient with automations such as the removal of the gloves from the mould, which according to the company, is an advantage over its peers.
- A nitrile glove production line can be easily converted to a latex glove production line but a latex glove production line cannot be converted into a nitrile glove production line. This is because the process of producing a nitrile glove is longer and thus requires a longer line. Thus a latex glove production line is too short to be converted to a nitrile glove line but a nitrile glove line can accomdate the shorter process of a latex glove manufacturing sequence.
- Although, Hartalega Holdings Bhd is involved in a commodity business, it is still earning more than 20% in net margins for the past few years. However, with many of its competitors adding more nitrile production lines to the systems, the company expects its net margins to fall in the future to around 15%.
- Currently, 90% of the gloves produced are for medical purposes while 10% are used for electronic cleanroom purposes. Generally, a cleanroom gloves sells at a 30% premium over medical gloves. However, the cleanroom gloves markets is only the size of about 2% of the whole medical gloves market and therefore is not big enough to make any significant contribution for a large producer like Hartalega.
These are a few of the fun facts we found out during our visit. Do visit us at our website to learn more about some of the risks of investing in Hartalega Holdings Bhd and other analysis on companies around Asia.
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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned.