Hartalega – One Man’s Pain Is Another’s Gain

Hartalega Holdings Berhad  is poised to benefit from the potential trade diversion following the announcement of higher US import tariffs on Chinese glove makers. The execution of the rate hikes remains crucial at this point given the upcoming US presidential election in 3Q24.

RHB Investment Bank (RHB) today (May 15), said they continue to like Hartalega given its solid balance sheet and improved market dynamics, which should propel its earnings growth in FY25F.

RHB issued a BUY call, with a higher MYR3.30 TP on Hartalega.

US Trade Representative Katherine Tai released a list of proposed strategic sectors (up to 14) which will be subjected to tariff hikes (or new tariffs imposed for certain products) ranging from 25% to 100%. Notably, medical gloves is included with a proposed tariff hike to 25% from 7.5%, which will take effect in 2026.

Opportunity to narrow the price gap. The current tariff structure imposed on Chinese glove makers is: i) 7.5% on medical grade gloves; ii) 25% on industrial grade gloves.

After incorporating the 25% tariff, Chinese glovemakers’ ASPs would increase to USD20-21.25 per 1000 pieces from the current level of USD16-17. This could essentially narrow the price gap between gloves produced in China and those made in Malaysia, which are currently selling at USD20 (and are not subject to import tariffs by the US).

New tariffs expected to start in 2026. While the new tariffs are expected to be effective from 2026, this may allow Chinese manufacturers to reconsider their expansion plans into overseas markets to circumvent the tariff hike.

RHB said overseas expansions could make Chinese glove makers less cost competitive (as manufacturers in China use coal, a cheaper fuel as compared to natural gas).

RHB keeps their volume estimate unchanged at the moment as the effect of the import tariff is expected to be seen by 2026 and raised their FY25F-FY26F earnings by 3%, taking into account a higher USD/MYR exchange rate offset by a slight increase in key raw material cost.

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