Analysts stay bearish on Hartalega's earnings prospects

KUALA LUMPUR: Hartalega Holdings Bhd's prospects will be yet to recover in the coming quarters as the rubber glove industry continues to face headwinds in the post-Covid era.

In the third quarter of its 2023 financial year, the glover maker recorded a loss after tax and minority interest of RM25.1mil, which brought its 9MFY23 core profit after tax and minority interest to RM133.3mil.

Hong Leong Investment Bank (HLIB) Research, which has a "sell" call on Hartalega, lowered its target price on the stock to RM1.28 from RM1.48 as it said the performance was below its expectations at 62% of its full-year forecast.

"Although Hartalega has seen a slight uptick in orders (benefitting from the China glove plants closure for CNY festive and China Covid spike) and will attempt to revise ASPs upwards slightly, we think that the outlook still remains bleak as Hartalega will be affected by the rising electricity and fuel costs," said the research firm in a report.

Subsequently, HLIB lowered its FY23-25 earnings forecasts to RM108.2mil, -RM74.3mil and RM124.2mil to take into account the higher costs.

The research firm added that despite Hartalega's attempt to pass on part of its cost increase to buyers, the demand-supply mismatch persists, the average selling price (ASP) revision is likely to be small and costs are expected to increase further.

Meanwhile, Kenanga Research cast doubts over whether it was viable for Hartalega to attempt to raise prices in February and March 2023.

"We are uncertain if this is viable as we gathered from sources that Chinese players are still undercutting by selling as low as US$14-16 per 1,000 pieces.

"Furthermore, the prospect of raising ASP is challenging due to the current massive overcapacity situation," it said in a results note.

The research firm cut its FY23 profit forecast by 86% and revised its FY24 projection to a net loss of RM24mil.

Kenanga reiterated "underperform" and cut its target price on Hartalega to RM1.35 from RM1.39.

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Hartalega , Kenanga , HLIB , glove , ASP , downgrade , earnings


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