EVEN after ‘forgiving’ Hartalega Holdings Bhd for posting a net loss for its 4Q 3/FY2022 which is purely attributable to the expected one-off windfall tax a.k.a cukai makmur, Maybank IB Research has reiterated its “sell” rating on the priciest of the Big-Four glove makers on Bursa Malaysia.
Although it raised Hartalega’s target price to RM3.14 (from RM3.01 previously), the research house remained wary of the management’s cautious stance on industry outlook due to stiff competition and escalating raw material costs despite the recent pick-up in orders and stabilising average selling prices (ASPs).
“(The) management expects contraction in margin post-COVID due to rising global supply and production costs, hence will put its NGC (Next Generation Integrated Glove Manufacturing Complex) 2.0 expansion (82 lines or 32 billion pieces of gloves) on hold for now in view of stiff competition while having set up a team to explore M&A (merger & acquisition) opportunities,” justified analyst Wong Wei Sum in a results review.
“Elsewhere, the upcoming 1Q FY3/2023 results would likely be weaker quarter-on-quarter (qoq) on lower ASP and higher operating costs.”
According to Maybank IB Research, Hartalega’s 4Q FY3/2022 net loss stood at RM197.9 mil (-1.8 times qoq; -1.2 times year-on-year [yoy]) which took the company’s FY3/2022 net earnings to RM3.2 bil (+8.7% yoy) or 106%/100% of its/street’s forecasts.
Meanwhile, CGS-CIMB Research has maintained its “hold” rating on Hartalega with a lower target price of RM4.70 (from RM5.80 previously) as it expects Hartalega to post an 83.7% yoy decline in its FY3/2023F net profit due to margin compression from lower ASPs and higher production costs.
“While we like Hartalega for its (i) leading technology in the nitrile space; (ii) better automation efforts among peers; and (iii) higher margins vs peers (past five-year average), its earnings prospects are likely to remain weak in the near-term with limited upside potential,” projected analyst Walter Aw.
According to CGS-CIMB Research, Hartalega reported a net loss of RM198 mil in its 4Q FY3/2022 after incurring the full impact of prosperity tax amounting to between RM350 mil and RM400 mil.
At 10.25am, Hartalega was down 1 sen or 0.23% to RM4.33 with 407,400 shares traded, thus valuing the company at RM14.84 bil. — May 11, 2022
