Analysts cut earnings forecasts for Hartalega

KUALA LUMPUR: Analysts have trimmed the earnings forecasts of Hartalega Holdings Bhd after the glove maker’s results came in below expectations.

Hartalega registered its third consecutive loss-making quarter after posting a net loss of RM52.47mil or loss per share of 1.54 sen in its first financial quarter ended June 30, 2023.

This compares with a net profit of RM88.28mil in the same quarter in 2022.

Revenue in the quarter under review contracted to RM440.04mil from RM845.67mil in the comparative quarter, mainly owing to the lower average selling prices and reduced sales volume.

Hong Leong Investment Bank (HLIB) Research said Hartalega’s performance was below both the house and consensus estimates of -RM128.6mil and RM233.8mil respectively.

It said the key discrepancy to its forecast was due to lower-than-expected revenue, as sales volume took a hit despite average selling prices (ASPs) growing marginally.

“We cut our FY24f/25f earnings forecasts to -RM155.5mil/RM114mil as we lower our revenue forecast assumption. We also introduce our FY26f earnings forecast of RM214.4mil,” HLIB said.

The research house said ASP reported an uptick in 1Q24 as glove makers passed on the higher natural gas costs.

“With the easing natural gas and raw material prices, we think glove makers are likely to have to share the cost savings with buyers in order to stay competitive. Hence we believe ASPs will inch lower in the coming quarter.

“Not to mention with coal prices easing, Chinese players would also have more room to adjust ASPs lower, further hurting the already challenging business landscape,” it added.

HLIB has maintained its “sell” call on Hartalega with a lower target price of RM1.15 from RM1.18 previously.

Meanwhile, Kenanga Research said Hartalega’s 1QFY24 net loss of RM52.5mil already made up 64% of its full-year net loss forecast of RM82mil and was a far cry from the full-year consensus net profit estimate of RM215mil.

Kenanga has widened its FY24F net loss forecast by 28% to RM105mil (from RM82mil) as it reduce the utilisation rate to 35% from 40%. The research house maintained its FY25F earning forecast.

It has reiterated its ‘underperform’ call but nudge its target price down slightly by 5% to RM1.85 from RM1.90 previously.

The research house expects 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.

“Based on our estimates, the demand-supply situation will only start to head towards equilibrium in 2025 when there is virtually no more new capacity coming onstream while the global demand for gloves continues to rise by 15% per annum underpinned by rising hygiene awareness,” it said.

MARGMA projects 12%−15% growth in the global demand for rubber gloves annually from 2023, following an estimated 19% contraction to 399 billion pieces in 2022.

It believes the supply-demand equilibrium may return in 6−9 months.

“However, we beg to differ, expecting the overcapacity situation to persist at least over the next 12 months. We project the demand for gloves to rise by 15% in 2023, which is consistent with MARGMA’s forecast.

“On the supply side, we are now factoring in a reduction of 24 billion pieces of gloves in the system by end- FY23. This will result in an excess capacity of 112 billion pieces which is similar to CY22,” Kenanga said.

It added that despite the improvement, the overcapacity still persists which means low prices and depressed plant utilisation will continue to plague the industry in 2023.