KUALA LUMPUR (May 9): Hartalega Holdings Bhd’s share price staged a strong rebound although it reported a large quarterly net loss of RM302.75 million and a big drop in revenue for the fourth quarter ended March 31, 2023.

The buying interest was mainly because the latest set of earnings figures came in better than expected on quarterly comparison. The tone of Hartalega’s management also appeared more upbeat compared with the previous quarter, according to analysts.

The glove maker incurred a massive impairment of RM347 million as a result of the decommissioning of its plant in Bestari Jaya, with the one-off impairment dragging Hartalega into the red. Meanwhile, its quarterly revenue plunged 46.7% to RM515.74 million from RM968.69 million a year prior.

The stock jumped nearly 21% or 39 sen in the afternoon, making it the second top gainer on Bursa Malaysia on Tuesday (May 9) after its release of financial results. It was also the sixth most active stock Bursa Malaysia as 64.77 million shares changed hands.

“The rebound is mainly driven by the better than expected result from Hartalega as their 4QFY2023 top line rebounded by 12% q-o-q lead by pick up in sales volume partially offset by softer average selling prices (ASPs),” RHB Research analyst Oong Chun Sung told The Edge.

Hartalega’s quarterly revenue of RM515.74 million in 4QFY2023 represents an 11.6% growth from RM461.84 million in 3QFY2023. Its operating profit soared 150% quarter-on-quarter (q-o-q) in 4QFY2023.

“Management tone during the result briefings was slightly positive as compared to the previous quarter in our view as the ongoing cost optimisation, which is the scale down of less efficient manufacturing plants, and normalisation of raw material cost could provide a partial cushion against uncertainty in cost pass through initiatives,” he said.

A day before, Hartalega’s share price fell 10 sen to close at RM1.87.

Dragged by a RM347 million one-off impairment loss from the decommissioning of its Bestari Jaya production facility, Hartalega sank into the red for FY2023 with a net loss of RM218.04 million versus a net profit of RM3.23 billion a year earlier.

Oong believes that the rebound in Hartalega's share price as seen on Tuesday is sustainable “considering the cost pass through initiatives had come into picture by local as well as regional peers”.

He said it is also supported by cost normalisation, predominantly gas tariffs that are expected to trend lower in view of lower natural gas prices, as well as depleting client inventory, with restocking activities expected to normalise by the second half of 2023.

Malacca Securities Sdn Bhd senior analyst Kenneth Leong, when contacted by The Edge, also said Hartalega’s share price rebound is an effect after the company reported better q-o-q core earnings, excluding the one-off impairment of RM347 million.

“This implies that the worst could be over for the gloves industry. However, the recovery process is still at an infant stage as ASPs remain low against historical average,” Leong said.

Besides Hartalega, share prices of other glove counters also spiked on Tuesday. Careplus Group Bhd’s share price gained 18.87% or five sen to 31.5 sen. Top Glove Corp Bhd’s share price climbed 15.34% or 14.5 sen to RM1.09. Kossan Rubber Industries Bhd’s share price rose 12.3% or 15 sen to RM1.37. Supermax Corp Bhd’s share price increased 9.88% or 8.5 sen to 94.5 sen.

Malacca Securities’ Leong does not foresee the share prices that rebounded on Tuesday as sustainable because he believes the glove companies are trading ahead of their fundamentals at current share prices “while the near term outlook is still not favourable”.

Meanwhile, Inter-Pacific Securities Sdn Bhd analyst David Lai Yoon Hui told The Edge that the rebound is “very likely” sustainable for investors who trade on technical analysis whereas fundamental investors are willing to wait for more certainty.

Another analyst from a different research firm, who declined to be named, said the supply-demand dynamic of the glove sector will not return to normal in the next one to two years at the very least.

“Fundamentally, we continue to be cautious about the glove market due to the oversupply scenario that has led to the majority of glove makers reporting net losses,” the analyst told The Edge.

The analyst added that there is limited room for an ASP hike given the continued oversupply situation and softer buying interest from buyers.

“Therefore, any potential ASP increase may not be significant enough to have a major impact on the industry as a whole,” the analyst said.

With Tuesday’s closing price at RM2.26, Hartalega has a market capitalisation of RM7.75 billion.