PETALING JAYA: Hartalega Holdings Bhd
is likely to face a near-term squeeze on margins as glove average selling prices (ASPs) ease and higher raw material costs may take time to pass through to customers.
“We expect near-term profitability to be affected by ASP normalisation and the delayed pass-through of higher raw material costs following earlier procurement at elevated prices, which could result in margin compression,” CIMB Research said.
It added that Hartalega’s ASP had eased to about US$22 per thousand gloves from US$26.70 in the second quarter of its financial year ending March 31, 2027 (2Q27).
It expects 3Q results to weaken from the preceding quarter.
“Over the medium term, Hartalega continues to expect persistent industry oversupply and ongoing pricing pressure from China manufacturers to limit sector upside, broadly in line with our expectations,” CIMB Research said.
CIMB Research raised its financial year 2027 (FY27) core net profit forecast by 9% on stronger-than-expected ASPs. It cut its FY28 and FY29 forecasts by 2% and 3%, respectively, to reflect the higher minimum wage, with efficiency gains cushioning the impact.
“We reiterate our ‘hold’ recommendation on Hartalega, as the weaker near-term earnings outlook has been priced in,” the research house said, maintaining its target price at RM1.12.
Meanwhile, PublicInvest Research said it is raising its FY27 forecast core net profit by 6.5% to RM158mil, while keeping its FY28 and FY29 forecasts unchanged as it expects earnings to further normalise.
“Management expects further margin pressure in 3Q27, although residual high-cost nitrile butadiene rubber (NBR) inventory is limited to a few hundred tonnes, equivalent to around 2% of raw material requirements,” PublicInvest Research said.
It noted management expects sales volumes to improve in 3Q as Hartalega fills deferred orders, although shipping disruptions remain a constraint.
“We expect the gradual run-off of higher-cost NBR inventory and further operational efficiencies to support performance in the coming quarters.
“However, sustained earnings recovery remains dependent on volume growth and cost discipline, given persistent industry oversupply and limited pricing power,” the research house said.
“Since our downgrade to ‘underperform’ on Sept 17, the share price has fallen by 9.4%. We now upgrade our recommendation to ‘neutral’, with an unchanged target price of 98 sen, as the share price has corrected closer to our forecast,” it added.
PublicInvest Research expects industry oversupply and price competition to continue to cap any ASP recovery, despite any global glove demand growth forecast at 4% to 5% annually through to 2028.
“We expect the group’s earnings to rely increasingly on volume growth and operational efficiencies,” it noted.
