Dark Days Behind For Hartalega

Hartalega’s 4QFY24 core net profit of MYR1.8m (-97% YoY, -91% QoQ) was above expectations, Maybank notes the management has turned more positive on the sector outlook given improving glove demand and the ability to pass on additional raw material cost to its customers. Plant utilisation rate [UR] has improved to 73% in 4QFY24 on 31b pcs annual capacity.

The house raises its FY25-26 earnings forecasts by 19-35% and TP to MYR4.50 TP (+14sen) on unchanged 3.2x rolled forward CY26E P/B. BUY.

Higher sales volume, better utilisation rate Excl. one-offs (MYR18m credit recovery on asset post liquidation of a foreign subsidiary), HART delivered a small core net profit of MYR1.8m in 4QFY24, bringing FY24 core net profit to MYR50m (-69% YoY; excl. MYR47m provision in 1QFY24), which was 14%/25% above our/consensus estimates. The better-than-expected earnings was due to strong EBITDA margin and sales volume (+25% QoQ). UR jumped to 73% in 4QFY24, from 43% in 3Q.

Maybank gives its key takeaways from results concall with the group
1) Margins outlook is improving due to stronger glove demand and higher ASP from its Chinese counterparts, as well as better cost efficiency after decommissioning its Bestari Jaya Facilities; also, HART managed to pass on the increase in raw material cost to its customers; 2) sales momentum remains strong and utilisation rate is expected to improve to >80% (on 31b pcs annual capacity) in the coming months; 3) new production lines (to add 2.3b pcs p.a.) are ready to accommodate the rising demand, as HART is carefully planning to increase its capacity to 36b pcs p.a. by end-FY25.
Earnings adjustments

The raised earnings forecasts is factoring in: i) actual FY24 results, ii) better utilisation rate of 80%/80% (from 75%/80%) and iii) higher production capacity of 36b/37.5b pcs p.a. (from 31b) for FY25/26. Maybank also introduce FY27 earnings forecasts. Balance sheet stays strong with MYR1.4b in net cash (MYR0.40/sh) end-Mar 2024. It pegs HART valuation to its historical PBV mean of 3.2x.

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