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Health Care

Glove maker Hartalega kicks off huge expansion as demand surges

More growth expected but Malaysian company's shares at risk of overvaluation

Hartalega is the world's largest producer of synthetic rubber gloves, used mainly in the health care industry. (Photo by Keiichiro Asahara)

SINGAPORE -- Malaysian rubber-glove manufacturer Hartalega Holdings, a global industry leader, is on an aggressive expansion drive, increasing production capacity to capitalize on growing demand.

But while investors have been keen to get on board, there are concerns over just how long the high share price can last.

The company's mainstay products are high-end gloves for use in medicine, food manufacturing and scientific research, which it exports to over 30 countries, including the U.S., Japan and a number of European countries.

Hartalega started out making natural rubber products, taking advantage of Malaysia's ample resources -- the country is one of the world's largest producers of the material.

But having spotted the potential for better growth early on, the company began shifting to synthetic products. Artificial rubber has several advantages, such as being less likely to cause allergic reactions. Nowadays, nitrile gloves are the company's primary product.

Demand for industrial-use rubber gloves is on the rise, driven by growth in emerging countries. Hartalega has reacted by aggressively expanding production capacity, which has grown nearly 20% annually in recent years and now totals 20 billion gloves per year.

Revenue has also received a boost from rising unit prices, reaching 1.1 billion ringgit ($270 million) in the six months to September, up 47% from a year ago. Net profit totaled 200 million ringgit for the same period -- a 65% increase on the previous year.

Investors have reacted enthusiastically and the company's share price has climbed significantly this year.

Hartalega intends to further expand its production lines, including a plan to open a new plant in 2018 -- on top of four plants in operation. The goal is to increase annual production capacity by about 50%, to over 30 billion gloves, in two years. 

Risks include the potential negative top-line impact from competition with Top Glove, a larger rival and the main player in Malaysia, as well as rising oil prices, which could push up production costs.

Yet the consensus among market insiders is that current demand will keep Hartalega's earnings on a steady growth track, at least for now.

However, at nearly 40 times its expected earnings per share for the current fiscal year, the company's share price appears increasingly overvalued.

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