"Due to the over ordering over the past 15 months since the pandemic started, the market is currently undergoing through a phase of inventory adjustment.
"However, management expect orders to creep up from Aug 2021 and hence do not expect excessive downwards pricing pressure," said Kenanga Research following a conference call with Hartalega's management.
However, Hartalega's management guided that ASP is expected to taper 20% in 2QFY22.
The ASP trend is expected to soften albeit at a slower pace going forward as lead times have been reduced to 90 to 120 days from 150 days previously.
Post-Covid, the inventory restocking cycle is expected to spur demand, coupled with increased usage arising from new users and inreased hygiene awareness, said Kenanga.
According to the Malaysian Rubber Glove Manufacturers Association, the demand surge for rubber gloves will last beyond 1Q 2022 with growth rate averaging between 15% and 20% going forward.
Kenanga lowered its FY22 net profit projection on Hartalega by 6.5% to account for the lower utilisation rate.
It reiterated "outperform" on the counter but downgraded its target price to RM13.80 from RM15.76 previously based on 15x 2022 forecast earnings per share of 92 sen.