Harta Q4 FY2019

Harta 4th quarter revenue has improved compared to preceding year due to higher sales volume. However, PBT affected by fluctuation in currency causing a reduction of 15.8%. Higher labour cost as the minimum wages adjustment took effect in earlier this year. 

Total year revenue increased by 17.6% due to the improvement in sales volume of 10.1%, in tandem with growing demands for nitrile gloves and continuous expansion for their production capacity.

Throughout the reporting period, USD/RM trend is very fluctuating. It can drop around 2% within a month. Hence, export sectors who their operating revenue and operating cost are very sensitive with foreign currency will get affected. 

Looking at the asset, the management has reduced their inventories in this quarter. Trade receivables have increased which showing signs of more sales have yet to receive payments. It is good for management to reduce their inventories, as it can show that their operation processes are lean enough. However, payment receivable might show that the recent market is not doing great.

Total liabilities has increased by 15.2%. Although long term borrowing has slightly reduced, short term borrowing on the other hand has increased by 15%. Checking on operating activities, it is still maintained growing positively. Hence, the company performance is considered very healthy. Borrowing might be used in the plant expansion activities.

Compared to previous quarter, the group reported the reduction in sales revenue was mainly due to lower average selling price. Meaning that, currently the group is facing keener price competition on selling niltrile gloves as mentioned by few research houses.

The management has mentioned again in its prospect that currently company is facing over supply issue where supply grows faster more than demand.

Comment:
1. Management has admitted that the gloves have been over produced. Therefore, it will take some time for market to absorb the access capacity remain and industry players will slow down their production capacity expansion activities to align with market demand growth. I anticipate it will take a year for the market to recover.
2. Currency has been growing rapidly from end of March until now. Q4 report showing that the currency has badly affected the profit, on the other hand, the coming Q1, we shall see profit gain from USD/RM strengthening.
3. Company is not performing in Q4, as management was unable to hedge the fluctuation in the currency and the market demand has reduced. Therefore, I believe tomorrow there will be a heavy sell down pressure on Harta. The support line is RM 4.87. If the price cannot hold above it, it will be a bullish trend coming soon.