In a note today, Hong Leong Investment Bank (HLIB) Research has retained its “sell” call on the glove maker with a target price (TP) of RM2.08.
The assessment was made based on the higher feedstock and nitrile butadiene raw material prices, which have been on the rise since September.
With demand for gloves still underwhelming, HLIB Research said Hartalega is likely to maintain its average selling price (ASP) at current levels to avoid losing sales volume.
“Note that the current reported quarter has yet to fully reflect the ASP downtrend and we can expect to see lower ASP in Q3 FY2024,” it noted.
Hartalega’s Q2 FY2024 revenue dropped 22.7% year-on-year (y-o-y) to RM452 million, primarily due to the lower ASP.
More optimistic views
Meanwhile, Kenanga Research has maintained its “market perform” call on Hartalega and raised its TP to RM2.33 from RM1.85 previously.
“We rolled over our valuation from FY2024F to FY2025F and removed the 20% discount to the sector’s average down-cycle valuation since Hartalega has demonstrated a more disciplined production capacity cut of 32% compared to 10%-12% by its peers,” it noted.
Kenanga has projected an RM42 million net profit for the group in FY2024 and raised its FY2025 net profit forecast by 92%.
“We expect the operating environment to remain challenging in subsequent quarters, plagued by massive oversupply.
“Nevertheless, we expect the oversupply situation to be less acute and gradually improve following signs of players culling production capacity via decommissioning of selective plants,” it stated.
MIDF Research, on the other hand, has upgraded its call on Hartalega from “sell” to “neutral”. The research house increased the glove maker’s TP to RM2.20 from RM1.66, previously.
“Moving forward, we remain cautious about the ASP outlook, considering the oversupply situation, intense competition, and price-sensitive customers.
“On a positive note, we expect an increase in sales volume and the utilisation rate, due to the depletion of pandemic inventory,” MIDF said.
It said that the completion of the decommissioning of the Bestari Jaya facility which is expected sometime in mid-January 2024 is likely to enhance the group’s production efficiency, reduce production cost per unit, and improve profit margins.
Year-to-date, Hartalega’s share price has risen 43% from RM1.66 on Jan 3. It has gained 11% in the past three months from RM2.14 on Aug 8.
As at 3.28pm, the group’s share price was up by 5 sen or 2.15% at RM2.38, giving it a market capitalisation of RM8.16 billion.