Review

• Hartalega recorded a net loss of RM24.8mn for 1HFY24 (vs. net profit of RM116.6mn in 1HFY23). However, we deem the results as within expectation as FY24 earnings are expected to be back-end loaded.

• QoQ, the group turnaround with a net profit of RM27.7mn in 2QFY24 as compared to a net loss of RM52.5mn in 1QFY24. Revenue rose 2.7% QoQ to RM452.1mn mainly driven by higher sales volumes of 8%, mitigating the lower ASP of circa-4%. In addition, the performance was boosted by lower operating costs and ongoing operational rationalisation exercise of Bestari Jaya facility. Overall, plant utilisation rate rose to 44% (vs. 41% in 1QFY24).

• 1HFY24 loss before tax stood at RM9.2mn compared to a PBT of RM171.5mn in 1HFY23. We attribute the weaker performance to: i) lower sales volume of 27%, ii) lower ASP of about 15% and iii) provision for severance pay of RM47mn for Bestari Jaya decommissioning.

Impact

• No change to our earnings estimates.

Outlook

• Going into 3QFY24, we expect Harta’s performance to improve further, driven by higher volumes and cost savings. We do see higher demand for gloves as customers are replenishing inventory. Having said that, we believe that 3QFY24 ASP will trend lower by circa-5-8% due to competitive pricing.

• Management shared that Bestari Jaya operations are still running (2 lines) due to product qualification but will be fully decommissioned by mid January 2024 (4QFY24). Post decommissioning, operating costs will come down further. In addition, there is a possible reversal of some of the severance provision (RM47mn in 1QFY24) in 4QFY24 as the group was conservative previously. Meanwhile, we understand that negotiations are still on-going for the contractual obligation expenses of around RM23mn.

Valuation

• We maintain our Buy recommendation with a higher TP of RM2.60/share (previously RM2.33) based on 1.9x (previously 1.7x) FY25 P/B.

Source: TA Research - 8 Nov 2023