Hartalega: Saving Like a Pessimist, Investing Like an Optimist

We'll analyze the QR to find deep insights, assessing its multi-bagger investment potential for long-term investors

Hartalega recently, QR's financial report showed a decrease in sales from one quarter to the next but an improvement over the past year. This led to a decrease in its stock price due to investors' ongoing worries about future challenges. When examining QR's report, it's important to differentiate between expiring short-term and permanent long-term information. We aim to pinpoint the details that will remain important in the upcoming quarters and years and understand how their value might grow over time. Often, the most insightful pieces of information are not immediately obvious and are hidden within the report. Long-term information is vital because it stays relevant and builds upon our understanding as time goes on. While short-term information tells us what happened, long-term information explains why it happened and whether it might happen again.  With this approach, we will delve into the valuable information concealed within the Quarterly Report (QR), uncovering insights that go beyond the surface numbers to determine its potential as an attractive multi-bagger investment opportunity for long-term investors.

Fundamental change: 

A better quarter report. Sales volume decreased by 3% QoQ to 4.5 billion pieces from 4.6 billion. A logistical hiatus resulted in 600 million pieces of gloves (approximately 52 million in sales) not being shipped to customers, though the shipment was fulfilled by January. Assuming the 600 million pieces were sold at USD 19-20 per 1,000, with a variable cost at 40% of revenue (similar to the cost structure in 3QFY24, without accounting for additional cost-saving efficiencies), the estimated PBT is RM 38 million, slightly higher than RM 34 million in 2Q and thus better than Q2. The ASP decreased by 7% QoQ to USD 19.70 from USD 21.20 per thousand pieces, primarily due to pricing pressure from Chinese competitors and intense market competition.