The counter fell as much as 15 sen or 5.6% to RM2.51 shortly after the opening bell but subsequently pared its losses by the mid-day break, down nine sen or 3.38% at RM2.57.
A total of 16.3 million shares were traded, and it was among the top 25 most active stocks on Bursa Malaysia.
Though it was the second straight quarterly profit for Hartalega, there were some red flags that caught the eye of investors and analysts.
Its Q3 net profit of RM22.38 million was a decline of 19.2% compared with Q2 FY2024, mainly due to an 8.1% fall in quarterly revenue and a 3% drop in sales volume affected by the Red Sea crisis, causing delays in shipments.
Its cumulative nine-month (M9 FY2024) revenue tumbled 31% year-on-year (y-o-y) due to lower average selling prices (ASP) (down 13%) and volume sales (-20%). This resulted in a M9 FY2024 net loss of RM2 million compared to a profit of RM85 million in M9 FY2023.
These plus the bleak outlook for the glove sector prompted Public Investment Bank (PublicInvest) and Kenanga Research to issue sell calls on the stock.
In a note today, PublicInvest downgraded its call on Hartalega from “neutral” to “underperform”, with a lower target price (TP) of RM2.07.
It stated that the current share price has “outpaced its fair valuation”, and it does not anticipate any positive earnings surprises in the medium term.
The stock has fallen 14.9% from its year-high of RM3.02 on Jan 8.
PublicInvest added the outlook for the Malaysian glove industry appears to be bleak as it anticipates ASP to remain stagnant due to customers’ reluctance in absorbing additional costs amid stiff pricing competition from Chinese glove manufacturers.
Meanwhile, Kenanga cut its call to “underperform” from “market perform” with a TP of RM2.33 as Hartalega’s share price has “ran up prematurely”.
It said the M9 FY2024 results were within expectations as it expects a bumper Q4.
“This is based on the assumption that profit held back in Q3 by shipment delays due to geo-political tensions in the Red Sea will be booked in Q4, coupled with improving orders and cost savings from the decommissioning of its Bestari Jaya facility,” it said in a note today.
It also noted that Hartalega guided for an orders uptick in FY2025, underpinned largely by restocking activities.
“However, we believe the recovery in its quarterly sales will remain bumpy as buyers see little need and urgency to place sizeable orders or hold substantial stocks as supply is plentiful and readily available in the market.
“With a low industry utilisation of about 40%, we believe any attempt to hike selling prices would likely backfire,” it added.