KUALA LUMPUR (Dec 13): Maybank Investment Bank Research (Maybank IB) has upgraded Hartalega Holdings Bhd to a tactical “buy” at RM2.29, with a higher target price (TP) of RM3.02 (from RM2.25).

The research house said that while the glove maker remains cautious on the sector outlook, it had turned more positive and expects a better second half ending March 31, 2024 (2HFY2024) on better cost efficiency and a higher utilisation rate post the decommissioning of the Bestari Jaya facility.

In a note on Wednesday, the research house said the utilisation rate is expected to improve to about 50% in the coming quarters, leading to lower production cost.

It said the average selling price of gloves is expected to remain under pressure due to stiff competition.

However, Maybank IB said raw material prices are showing signs of stabilising, with the natural latex price declining by 3% and the nitrile latex price 1% lower, since November 2023.

Additionally, it said Hartalega’s natural gas cost will likely trend down after an expected increase in the first quarter of 2024, following international pricing adjustments.

“Since Hartalega has limited bargaining power in pricing for lightweight nitrile gloves, it would be paramount for Hartalega to focus on cost efficiency and sales volumes.

“We raise our FY2024/25/26 core earnings forecasts by 116%/2%/3% after factoring in: i) a higher utilisation rate assumption of 54.5% (from 49%) for FY2024; and ii) lower natural latex (-6%) and nitrile latex (-14%) price assumptions.

“Our TP is raised to RM3.02 (+77 sen) on a higher 2.2 times calendar year 2025 price-to-book value ratio (-0.5 standard deviation to the mean, from 1.6 times), with the rerating reflecting an improved earnings outlook,” it said.

The research house said that Hartelaga had the lowest impairment risk among the glove makers under its coverage post the decommissioning of the Bestari Jaya facility.

“Its balance sheet remained strong as at end-September 2023, with RM1.5 billion in net cash (44 sen per share),” the research house added.

For the first half ended Sept 30, 2023 (1HFY2024), Hartalega posted a net loss of RM24.77 million, versus a net profit of RM116.62 million a year ago, largely due to exceptional items. Revenue for 1HFY2024 fell 37% to RM892.12 million from RM1.43 billion.

According to its results filing, the group said it would have recorded a pre-tax profit RM38 million for 1HFY2024, compared with RM171 million a year ago, if the one-off provision for severance pay of RM47 million for its Bestari Jaya facility decommissioning, recognised in 1QFY2024, was excluded.

Shares in Hartalega jumped 24 sen or 10.48% to close at RM2.53 on Wednesday, with 17.17 million shares traded. It was the second top gainer of the day.

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