Hartalega Holdings reported a core PATANCI of RM177.8m for 12MFY23, after excluding a one-time off item of RM396m. The results outperformed the consensus full-year FY23 estimates, accounting for MIDFs 172% and 298% of the street’s.
The upward trajectory was mostly due to higher-than-expected sales volume on the back of some buying activities that increased the utilization rate. This has resulted in lower-than-expected production cost per unit.
On a sequential basis, the group reported higher revenue of RM515.7m in 4QFY23 as compared to RM461.8m in the previous quarter. This was supported by an improved sales volume (+24%qoq) on the back of customer buying activity throughout the quarter, which more than offset reduced ASP (-13.5%qoq). Despite higher energy and labor costs, the improved utilization rate resulting in lower production costs per unit. Combined with some reversal in provision of costs, the COG per 1000 units of gloves decreased by 22%qoq to RM87/1000pcs of gloves. After excluding a one-time item of RM346.9m, the group reported a net profit of RM44.1m compared to a net loss of -RM21.4m in the previous quarter. On a yearly basis, the core earnings returned to profit with a core PATANCI of RM44.1m in 4QFY23 as against a net loss of RM199.7m in 4QFY22. This improvement in earnings was primarily due to the absence of a prosperity tax provision in 4QFY23 that more than offset the decreased revenue of -46.8%yoy to RM515.7m combined with higher production costs.
Harta’s revenue for FY23 decreased by -69.5%yoy to RM2.4b mainly mostly owing to a persisting oversupply situation and supply chain inventory adjustment, which reduced the ASP (-59.9%yoy) and sales volume (-23.8%yoy). As such, the group recorded a core PATANCI of RM177.8m as compared to RM3.21b in 12MFY22, after excluding a one-off item. This was due to lower revenue, lower plant utilization as well as greater operating cost that eroded the profit margin.
In view of this latest performance report, MIDF maintains its call for Downgrade to TRADING SELL with an unchanged TP of RM1.75. Given that persistent oversupply of glove situation, the house said it makes no changes to its earnings estimation post result and analyst briefing.
The house also remains its cautious outlook on the company due to the anticipated 1–2-year timeline for the normalization of supply-demand dynamics in the industry. This is expected to result in soft average selling prices (ASPs) and demand for gloves. As a result, MIDF cautions that the group may report net losses for FY24F. However, the group’s solid net cash position of RM1.57b as of 4QFY23 provides some protection against potential downside risks in the long run.
