TA Research expects the company's 2Q24 sales volumes to increase by around 20% quarter-on-quarter.
PETALING JAYA: Hartalega Holdings Bhd
is expected to see further improvement in its earnings for the new financial year on stronger glove demand.
The anticipation of a better showing by the nitrile glovemaker for its financial year ending March 31, 2025 (FY25) is also supported by its ability to pass on higher raw-material cost to its customers.
Amid the improved outlook for the company, several research houses have raised their target prices for Hartalega.
Maybank Investment Bank Research (Maybank IB Research), for instance, revised its target price for Hartalega to RM4.50, up 14 sen from RM4.36 previously.
Reiterating its “buy” call on the counter, the research house said the revised target price was based on an unchanged 3.2 times rolled forward 2026 price-to-book value.
“Management has turned more positive on the sector’s outlook given improving glove demand and the ability to pass on additional raw-material cost to its customers,” Maybank IB Research said in a report yesterday following a recent conference call with Hartalega.
The research house added: “The group’s plant utilisation rate has improved to 73% in the fourth quarter (4Q) of FY24 on 31 billion pieces annual capacity.”
According to Maybank IB Research, Hartalega’s utilisation rate could improve to more than 80% in the coming months amid the strong sales momentum.
“New production lines are ready to accommodate rising demand, as Hartalega is carefully planning to increase its capacity to 36 billion pieces a year by end-FY25,” it said.
Hartalega posted a net profit of RM12.7mil on revenue of RM1.8bil for FY24, compared with a net loss of RM235.1mil on revenue of RM2.4bil in FY23.
Maintaining its “buy” call on Hartalega, RHB Research raised its target price for the group to RM4.10, up from the previous RM3.40.
It noted industry demand-supply dynamics continued to show signs of recovery on the back of an inventory destocking cycle coming to an end; improving order visibility; and customers being more receptive to price hikes.
“With the industry excess capacity gradually phased out, we expect the glove industry to achieve demand-supply equilibrium by end-2024,” RHB Research said.
It added the risk of price competition from China manufacturers would gradually subside on rising quality concerns and a pivot towards sustainability.
“We like Hartalega due to its robust balance sheet, efficient operating model, and the group being a key beneficiary of the recovery in medical-glove demand,” it said.
TA Research also reiterated its “buy” call on Hartalega, with a higher target price of RM4.08, compared with the previous RM3.05, after rolling forward the valuation base year to FY26 at 2.9 times price-to-book.
“We understand that Hartalega has been ramping up production capacity (90% as of March 2024 versus 45% in October 2023) to increase the output in anticipation of improving demand,” the research house said.
“Thus, we expect 2Q24 sales volumes to increase by around 20% quarter-on-quarter (q-o-q), while the average selling price is expected to improve by around 5% q-o-q,” it added.
Meanwhile, Hong Leong Investment Bank Research (HLIB Research) said while it was positive on the improving operating environment for glove players, the recovery thesis by 2025 was fairly priced in.
As such, HLIB Research maintained its “hold” call on Hartalega, with an unchanged target price of RM3.62 based on 32 times forward earnings.
Nevertheless, the research house conceded that Hartalega would likely deliver stronger sequential earnings on the inventory replenishment cycle; potential trade diversion to Malaysia as a result of higher import tariffs on China products by the United States in 2026; and the commissioning of a new plant, as well as lower cost structure post-decommissioning of its plant in Bestari Jaya, Selangor.
