PETALING JAYA: Analysts remain cautious on the prospects of Hartalega Holdings Bhd
, with the group expecting margins to come under pressure in the current quarter as average selling prices (ASPs) retreat from a temporary spike.
This comes as high-cost raw material inventories continue to weigh on profitability, despite plans to restart idled production capacity and raise prices later in the financial year.
The glove maker said sales volumes are likely to remain broadly flat in the second quarter of the financial year ending March 2027 (2Q27), with ASPs correcting more quickly than input costs.
Industry-wide price increases of about US$1.50 to US$2 per 1,000 gloves are expected in 3Q to offset higher nitrile and natural gas costs, although implementation could prove challenging amid persistent oversupply and intense competition from regional manufacturers.
Analysts also noted that ASPs have already fallen to around US$20 per 1,000 gloves from 1Q levels, suggesting earnings are unlikely to match the previous quarter’s performance.
Management is proceeding with the recommissioning of Plant 3 by December 2026, adding about four billion to 4.5 billion gloves of annual capacity.
Together with Plant 4, annual production capacity could eventually rise to 34 billion to 36 billion gloves, while monthly output is targeted to increase to about 2.4 billion to 2.5 billion gloves by end-2026.
Excluding the hibernated plants, utilisation currently stands at about 96%, reflecting resilient underlying demand.
For 1Q27, Hartalega posted net profit of RM70mil, up from RM12.6mil a year earlier, on revenue of RM605.8mil, which rose 9.5% year-on-year.
Revenue growth was driven primarily by higher selling prices, while improved operating efficiency and automation initiatives lifted margins despite elevated nitrile raw material costs.
Core earnings of about RM71mil to RM72mil exceeded or broadly matched analysts’ expectations, accounting for roughly 45% to 53% of full-year forecasts across research houses.
Several brokerages believe the 1Q represented a temporary earnings windfall rather than the start of a sustained recovery, with CIMB Research expecting profitability to weaken in the coming quarters as ASPs normalise following easing tensions in West Asia and lower feedstock prices.
It lowered its earnings forecasts for financial year 2027 (FY27) and FY28 for Hartalega and reduced its target price to RM1.12 from RM1.24, while maintaining a “hold” recommendation.
Phillip Capital Research took a more constructive view after stronger-than-expected margins from Hartalega, raising its earnings forecasts by 30% to 47%, upgrading the stock to “hold” from “sell” and increasing its target price to RM1.11.
It said the 1Q earnings beat was largely attributable to a more favourable ASP-cost spread than previously anticipated, although it also expects margins to soften in the near term.
Additionally, TA Research maintained its “hold” call with a RM1.11 target price, describing the quarterly results as within expectations given the anticipated moderation in ASPs and continuing competitive pressures.
It noted that higher selling prices, automation-driven cost optimisation and production efficiency had significantly strengthened 1Q profitability.
Another analyst with a foreign brokerage is similarly “neutral” on Hartalega, remarking that company has clearly turned the corner operationally, with higher ASPs, improved production efficiency and automation driving a sharp rebound in profitability in 1Q27, while its net cash position of more than RM1bil gives it significant financial resilience.
However, she believes the market is already looking past the strong quarter because it was boosted by temporary factors, particularly the surge in glove prices following raw material disruptions during the Middle East conflict.
“Furthermore, with ASPs already falling sharply from their 1Q27 peak, margins are likely to contract over the next one to two quarters before any planned price increases can take effect,” the analyst told StarBiz.
