HLIB Research revised lower its FY24 and FY25 earnings forecast for the glove maker to a net loss of RM128.6mil and profit of RM123.8mil.
PETALING JAYA: Hartalega Holdings Bhd
’s decision to decommission its production facility at Bestari Jaya in Selangor has analysts anticipating another poor financial year for the nitrile glove maker after a weak close to its financial year 2023 (FY23) with a net loss of RM218mil.
Hong Leong Investment Bank (HLIB) Research revised lower its FY24 and FY25 earnings forecast for the glove maker to a net loss of RM128.6mil and profit of RM123.8mil (from RM74.3mil/RM124.2mil) respectively, as it took into account the anticipated provision for retrenchment and contract obligation expenses of about RM70mil (over the next six months) from the decommissioning exercise.
That and the substantial losses posted by Hartalega has led the research house to lower its valuation for the company with a “sell” call recommendation.
HLIB Research has cut its target price (TP) for Hartalega to RM1.18 a share (RM1.28 previously), after taking into account the effects of asset impairment.
“Our TP represents a price-to-book (P/B) multiple of 0.87 times its FY24 book value per share of RM1.36,” it stated.
Kenanga Research, meanwhile, maintained its TP for Hartalega at RM1.30 a share, but noted its bearish expectations for a turnaround in the sector in FY24 ended March 31.
The research house noted demand supply fundamentals for the glove industry remain with excess supply, manufacturing overcapacity and weak pricing power expected to persist into FY24.
Rising cost pressures has led Hartalega to raise average selling prices but without much success.
“Due to the current competitive pressure emanating from massive oversupply and low industry utilisation averaging 40%, customers can walk away and choose to buy from other players whenever there is an attempt to raise prices.
“Case in point, buyers can turn to Chinese manufacturers who are still selling below US$20 (RM89) per 1,000 pieces at US$17 (RM75) per 1,000 pieces,” Kenanga Research stated.
That saw Hartalega’s FY23 revenue tumble 65% year-on-year to RM2.4bil on declining average selling prices (32%) and sales volume (22%) as competition remained intense.
The decommissioning of the Bestari Jaya facility will lead to a loss in capacity of 13 billion pieces per annum.
However, Hartalega’s new next generation integrated glove manufacturing complex (NGC) in Sepang is expected to help the group recover the lost production capacity.
“NGC 1.5 is expected to have four plants with an estimated capacity of 19 billion pieces and will be gradually ramped up from end-2023 or early 2024, depending on market conditions,” Kenanga Research said.
Maybank Investment Bank Research, however raised its TP for Hartalega to RM1.35 a share from RM1.18, but that was mainly due to a change in valuation methodology to a P/B value instead of price-to-earnings and anticipated loss for FY24.
The research outfit, however, kept its “sell” call on the counter due to its weak prospects, but highlighted the glove maker retained some RM1.6bil in cash which amounted to 46 sen a share.
