RHB Research said it maintained its bullish stance on Hartalega.
KUALA LUMPUR: The worst is likely over for glove maker Hartalega Holdings Bhd
following the weak results for the third quarter (3Q) of its financial year ending March 31, 2024 (FY24).
This is premised on improved demand for gloves, increased operating efficiencies and easing of raw material prices.
As such, several analysts reiterated their “buy” calls on Hartalega, including RHB Research, Maybank Investment Bank (Maybank IB) Research and TA Research.
RHB Research, however, cut its target price for Hartalega to RM3 from RM3.25 previously, while Maybank IB Research and TA Research maintained theirs at RM3.02 and RM3.05, respectively.
In its note, RHB Research said it maintained its bullish stance on Hartalega, underpinned by improvements in market dynamics by the second half of 2024 (2H24) and operating efficiencies (post-decommissioning exercise) and a gradual easing in raw material costs.
“We believe the worst is over, as glove makers’ profitability is set to recover year-on-year (y-o-y) by 2024 with greater demand visibility to prevail in 2H24.
“With the industry’s excess capacity gradually phasing out, we should see demand-supply equilibrium,” the brokerage explained.
“We also expect the risk of price competition from Chinese peers to gradually subside, premised on arising quality concerns resulting in higher rejection rates from the US Food and Drug Administration, and Chinese players’ pivoting stance towards sustainability,” it added.
RHB Research expected the average selling prices (ASPs) of gloves to trend higher in 4Q24 – tracking higher raw material and utility costs in 4Q calendar year 2023 (CY23) to 1Q CY24.
“All in, we retain our view that glove demand will continue to pick up in the coming quarters, as client inventory levels continue to deplete,” it added.
Maybank IB Research said Hartalega’s margin outlook remained volatile due to demand-supply imbalance. However, it noted that the management would attempt to pass on any additional cost in the event of raw material cost hike.
“Cost savings and efficiency gains from the Bestari Jaya facilities decommission should help to defend its operating margin if Hartalega fails to pass on the higher raw material cost,” it said.
“Hartalega’s sales volume has increased by 33% month-on-month in January 2024 and Hartalega is preparing to restart its idle production lines to accommodate the rising demand,” it noted.
It added that the company had started recruitment for its new NGC1.5 plants, which would be commissioned gradually depending on market demand.
TA Research noted that Hartalega’s 4Q24 sales volumes would likely increase by about 11% quarter-on-quarter.
“Overall, we believe that Hartalega’s performance will improve, driven by higher volumes, better efficiency and cost savings from the decommissioning of Bestari Jaya,” it said.
Hartalega reported an operating loss of RM7.8mil in 3Q24, as compared to an operating profit of RM15.9mil in 2Q24, on lower sales volume and ASPs.
For the nine months to December 2023 (9M24), it reported a net loss of RM2.4mil, as compared to a net profit of RM84.7mil.
UOB Kay Hian Research said Hartalega’s 9M24 results were below its expectations.
The brokerage, however, expected better earnings by Hartalega in 4Q24, premised on margin expansion, shipment of delayed orders and improving efficiency.
It maintained its “hold” call on Hartalega with a lower target price of RM2.65, as compared with RM2.77 previously.
