KUALA LUMPUR – Kenanga Research expects Hartalega Holdings Bhd’s (Hartalega) average selling price (ASP) for its gloves for the first quarter for financial year 2022 (Q1 FY22) to continue showing quarter-on-quarter (q-o-q) improvement, though this is expected to taper off from Q2 FY22.
The research house said in a note today that over-ordering since the start of the pandemic in the past 15 months has left the market currently undergoing a phase of inventory adjustment.
“However, Hartalega’s management expects orders to creep up from August 2021, hence, they do not expect excessive downwards pricing pressure.
“Management has guided the ASP to taper by 20% in Q2 FY22,” it said.
Kenanga Research said the ASP trend is expected to soften, albeit at a slower pace going forward, as lead times have been reduced to between 90 and 120 days from 150 days previously.
It added, post-Covid-19, the inventory restocking cycle is expected to spur demand, coupled with increased usage arising from new users and increased hygiene awareness.
Hence, Kenanga Research has trimmed the company’s FY22 estimated net profit by 6.5%, factoring the lower utilisation rate of 92% (from 98% previously) into the earnings model, and lowered the target price (TP) for Hartalega’s shares from RM15.76 to RM13.80.
Meanwhile, CGS-CIMB estimates Hartalega’s Q1 FY22 ASPs to rise by 8.8% to 12.4% q-o-q to US$90-93 (RM370.17-382.51) per one thousand pieces.
“This was higher than expected as we had earlier forecast for ASPs to start declining from April 22 onwards,” it said in a note today.
Consequently, CGS-CIMB has raised Hartalega’s FY22 forecast (FY22F) earnings per share (EPS) by 17.5%.
“However, we lower our FY23-24F EPS by 16.5% to 19.9% as ASPs should fall due to customers’ slower buying patterns, expected drop in raw material prices, and further increases in global glove capacity,” it said, lowering Hartalega’s TP to RM9.68 from RM11.80 previously. – Bernama, June 15, 2021
