MAYBANK IB Research has reiterated its sell” rating on Hartalega Holdings Bhd with a lower target price of RM1.43 (from RM1.86 previously) on grounds that recent rebound in the Big-Four glove maker’s share price may not be sustainable as sector fundamentals remain weak.
In fact, Hartalega’s management remains cautious on the industry outlook due to stiff competition and likely losses over the next two quarters in view of the low utilisation rate of 49%, according to the research house.
“The management has guided for potential losses over the next one to two quarters in view of the stiff competition and excess supply in the market as well as rising energy cost,” analyst Wong Wei Sum pointed out in a results review.
“ASP (average selling price) is expected to stay at circa USD20 per 1,000 glove pieces in the near term while utilisation rate has dropped to 50% (in line with the industry) from 70% in April-June 2022.”
Dragged by lower sales volume and higher costs, Hartalega’s 2Q FY3/2023 net profit edged down 68% quarter-on-quarter (qoq) and 97% year-on-year to RM28.34 mil (2Q FY3/2022: RM914.01 mil), taking its 1H FY3/2023 net profit to RM116. 62 mil (-96% yoy; 1H FY3/2022: RM3.17 bil).
Additionally, Maybank IB Research is also wary about Hartalega continuing its cost optimisation initiatives and the fact that while its dividend payout ratio policy will be unchanged at 60%, the management will only declare dividend in 4Q FY3/2023 due to uncertainty in the glove industry.
Interestingly, however, CGS-CIMB Research upgraded Hartalega to “hold” from “reduce” previously (but with a lower target price of RM2.10 from RM2.30 previously) on projection that while the glove maker’s earnings could remain weaker in 2H FY3/2023F, its current valuations (20% discount to the sector) will be supported by long-term industry prospects.
“This is upon normalisation of the supply-demand dynamics in the sector and Hartalega’s leading technology in nitrile glove manufacturing (it has the highest margins in the sector),” justified analyst Walter Aw.
“It is also backed by its strong net cash position of RM1.8 bil (52 sen/share) as at end-2Q FY3/2023.”
At 10.51am, Hartalega was down 8 sen or 3.86% to RM1.98 with 10.72 million shares traded, thus valuing the company at RM6.82 bil. – Nov 9, 2022
