KUALA LUMPUR, Oct 30 -- CGS-CIMB has reiterated its "add" call on Hartalega Holdings Bhd, with an unchanged target price (TP) of RM24.80 amid prospects of higher average selling prices (ASPs) and strong glove demand sustaining for the next 12 months.
Based on its recent meeting with Hartalega, CGS-CIMB learnt that Hartalega expects the current shortage in global glove supply to persist for the next two to three years, as the group does not expect the additional glove supply that would come on-stream in the next two to three years to be sufficient to meet market demand.
"According to its internal study, Hartalega estimates that there is currently a shortage of 120 billion pieces of gloves annually.
"It only expects this shortage to be rectified by 2024, at which time, new capacity would be sufficient to offset the increase in glove demand," CGS-CIMB said in a note today.
On the ASPs, the research house said as Hartalega’s ASPs are currently trailing those of its glove sector peers, the group believes a further ASP hike would not be difficult.
"We gather Hartalega aims to raise its ASPs by 50 per cent quarter-on-quarter in the third quarter for the financial year ending Dec 31, 2021 (Q3 FY21). It is also not discounting further hikes from Q4 FY20 onwards," it said.
Nevertheless, CGS-CIMB foresees the company's ASPs would still be at a discount to peers despite the expected hike in Q3 FY21.
"In our view, Hartalega’s ASPs tends to lag those of its peers, given its long-term contracts with larger volume customers, and its intention to maintain long-term relationships with key customers by keeping prices reasonable," it said.
Overall, the research house said it continued to like Hartalega for its industry-leading technology in the nitrile glove space, being a beneficiary of strong global glove demand owing to COVID-19, as well as its higher-than-average margins in the sector over the past five years.
At 11.03 am, Hartalega advanced 14 sen to RM18.16, with 905,900 shares traded.
--BERNAMA
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