Rubber glove company Hartelega reported a third-quarter net loss of RM32 million versus an RM259 million net profit in the same preceding period last year, this was however below expectations says Maybank IB. The latest results have gotten the investment bank’s management to be cautious about the industry outlook due to stiff competition.
Hence, it believes losses will continue over the next quarter, ad has subsequently lowered the FY23-25 earnings forecasts by -15% to -38% with a target price for the stock at RM1.18 (-25sen) and placed a Sell call on Hartelega.
The net loss was attributed to declining in ASP, lower revenue due to oversupply, and higher energy and labour costs which have led to Hartalega reporting a reduction in revenue for the full 3 quarters.
Based on these factors, Maybank IB is of the view that Hartalega may not be able to turn around so soon as earnings may still be hit by higher energy and electricity costs despite the improvement in plant utilisation rate after Dec 2022. While management is trying to raise selling prices to cover part of the higher costs, it may not be successful given the stiff competition and excess supply in the market. ASP is now at c.USD20/k pcs (below pre-pandemic level); 2) Management is looking to diversify HART’s income stream by strengthening its distribution business (accounts for 8% of total revenue). HART is also looking to set up manufacturing facilities outside of Malaysia for risk diversification; 3) Efficiency/cost rationalisation exercise is ongoing.