KUALA LUMPUR – Research houses have maintained a positive stance on Hartalega Holdings Bhd (Hartalega), following the glove manufacturer’s strong first quarter (Q1) results.
Public Investment Bank Bhd (PIVB) has maintained its “outperform” ratings on Hartalega’s shares with a target price (TP) of RM7.80 per unit, after the company reported that its net profit for the first quarter ended June 30, 2021, (Q1) had increased to RM2.26 billion from RM1.12 billion in Q4 2020.
The company had mainly attributed its performance to the higher sales volume and average selling prices (ASP) of rubber gloves.
“We continue to like Hartalega for its superior margins during pre-pandemic times. The results came in above both our and consensus estimates at 53% and 59%, respectively.
“We still deem Hartalega’s performance in line with our projections, as we are expecting weaker quarters ahead, reflecting the effects of a downward revision in glove pricing,” PIVB said in a note today.
On the company’s outlook, PIVB said the management projects glove ASPs to gradually decline and expects a 30% quarter-on-quarter (q-o-q) drop in Q2 2022.
Additionally, the Malaysian government’s 60% limit on worksite attendance is also expected to continue capping the utilisation rate at 70%.
“Glove buyers have resorted to sourcing part of its supplies from China in a bid to mitigate supply risks as the limited workforce has prohibited the local glovemakers from fulfilling all orders on a timely basis,” it added.
Meanwhile, MIDF Research has upgraded its call on Hartalega to ‘buy’ from ‘neutral’, with an unchanged TP of RM8.40 as the company’s core earnings exceeded expectations.
Looking beyond the near-term fluctuation, the research house said Hartalega’s fundamentals remained intact.
“We think that Hartalega is steadfast in maintaining its market share, particularly in the nitrile gloves segment, through its operational processes and product reliability.
“Its business ambitions are supported by its calculated expansion plan, healthy cash flow and robust balance sheet with a net cash of RM3.0 billion,” it said in a note today.
Meanwhile, Maybank IB Research and Ambank Research maintained their ‘hold’ call for Hartalega as they believed the strong earnings performance will not be sustainable.
“The ASP has been trending downwards since May 21 on rising vaccination rates around the world, even after factoring in Delta variant-driven demand,” they added. – Bernama, August 4, 2021
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