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Weak Q1 drags Hartalega's shares down by over 5 pct

10/08/2022 11:14 AM

KUALA LUMPUR, Aug 10 (Bernama) -- Hartalega Holdings Bhd's shares fell by 5.36 per cent this morning after the glove manufacturer reported a rather sluggish first quarter financial results yesterday.

At 10.20 am, the counter lost 15 sen to RM2.65, with 6.75 million shares changing hands.

In its first quarter (Q1) of financial year 2023 (FY23) ended June 30, 2022, Hartalega's net profit dipped by 96.1 per cent to RM88.28 million from RM2.26 billion in Q1 2022, due to higher energy and labour costs following the increase in natural gas tariffs and implementation of the minimum wage.

Revenue fell by 78.3 per cent to RM845.67 million from RM3.90 billion previously, mainly due to the normalising of the average selling price (ASP) and a 28 per cent decrease in sales volume, compared with Q1 2022 when both the ASP and sales demand hit a record high during the pandemic period.

In view of the intense market competition, the company is expecting the utilisation rate to decline going forward.

In a note, Hong Leong Investment Bank (HLIB) said Hartalega could be at the risk of being booted out of the KLCI in the upcoming FTSE Bursa Malaysia KLCI semi-annual review if its share price deteriorates even further.

As of yesterday, Hartalega currently ranks at the 35th spot.

According to the index ground rules, constituents could potentially be removed from the index if it falls below the 35th spot, and a selldown might be triggered if the constituent change materialises.

“We trim our financial year 2023-2024 (FY23/24) earnings forecasts for Hartalega by 18-24 per cent, as we lower our utilisation rate for FY23/24f to 63 per cent/73 per cent from 78 per cent/78 per cent previously.

“At the same time, we have also introduced our FY25 earnings forecast of RM575 million for Hartalega,” said HLIB, adding that it has maintained its 'sell’ call on the glovemaker’s shares, with a lower target price (TP) of RM1.92 per unit.

Meanwhile, Public Investment Bank Bhd said despite near-term headwinds, Hartalega’s long-term outlook remains positive as glove consumption in the emerging markets is expected to increase notably, due to heightened hygiene awareness.

The research firm has kept its ‘neutral’ rating on Hartalega, albeit with a lower TP of RM2.55 from RM4.92 per share previously.


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