KUALA LUMPUR: Hartalega Holdings Bhd
’s (Hartalega) share price rose at midmorning despite reporting a net loss in financial year 2023 (FY23).
At 10.45 am, the company’s shares increased by 30 sen to RM2.29 sen with 18.03 million units traded.
In a note, MIDF Research maintained its cautious outlook on the company due to the anticipated timeline for the normalisation of supply-demand dynamics in the industry, which is expected to result in soft average selling prices (ASPs) and demand for gloves.
Additionally, it noted that production costs are likely to remain elevated in the near term due to low utilisation rates, and Hartalega’s decommissioning of its manufacturing plant will increase production costs per unit, which could compress profit margins.
"As a result, we caution that the group may report net losses for FY24.
"However, the group's solid net cash position of RM1.57 billion as of the fourth quarter of FY23 (4QFY23) provides some protection against potential downside risks in the long run,” the firm said in a research note today.
Taking those factors into account, the research house has downgraded its call on Hartalega to ‘sell’ from ‘neutral’, retaining the target price (TP) at RM1.75 per unit.
Meanwhile, Hong Leong Investment Bank Bhd (HLIB) noted that Hartalega has tried to increase the price of its gloves but encountered strong pushback from buyers as the current oversupply situation provides buyers with the flexibility to shift to other manufacturers.
"Despite little success, Hartalega will still attempt to revise its ASPs upwards but we believe that this will erode utilisation rates, considering the intense market competition.
"As such, we cut our FY24/25 earnings forecasts for Hartalega to RM128.6 million/RM123.8 million from RM74.3 million/RM124.2 million previously, as we take into account the anticipated provision for retrenchment and contract obligation expenses of RM70 million,” it said.
As such, HLIB has retained its "sell” rating on Hartalega’s shares with a lower TP of RM1.18 as it takes into account the effects of asset impairment. - Bernama
