Review

• Hartalega’s 1QFY25 earnings of RM31.9mn accounted for 14.1% of our full-year forecasts and 16.4% of consensus estimates. We consider this to be within expectation as sales volumes are expected to improve going forward.

• 1QFY25 revenue and PBT grew 10.1% and 121.1% QoQ to RM583.8mn and RM41.1mn, respectively. This was driven by volume growth of 6.0% and higher ASP of c. 4.0%. For this period, we gathered that shipments of about 600mn gloves were delayed amid global shipping constraints. Note that the PBT margin expanded by 3.5%-pts to 7.0% QoQ despite higher raw material costs, which surged 12%.

• YoY, the group reported a PBT of RM41.1mn as compared to a LBT of RM44.7mn in 1QFY24. We attribute the improved performance to: i) increase in sales volume of 39.0%, ii) higher ASP of c. 2% and iii) lower operating costs due to improved production efficiencies. Overall, the plant utilisation rate improved to 78% (vs. 41.0% in 1QFY24).

Impact

• We reduce FY25/26/27 earnings estimates by 4.1/2.6/2.8% after incorporating FY24 audited numbers into our model.

Outlook

• Moving into 2QFY25, we expect the sales volumes to improve further by c. 9% QoQ as customers would continue replenishing inventory. However, the ASP is expected to be little changed due to the global oversupply. For instance, Hartalega’s domestic peers such as Top Glove are currently running at about 55% utilisation rates and could continue to selling its products at competitive prices.

• On its expansion plan, NGC1.5, Sepang (Plant 8-9) with approximately 11bn gloves per annum capacity is scheduled to begin commissioning in this quarter, to cater for the higher demand. Through NGC1.5, management targets to increase the installed capacity to 37bn gloves per annum by end-FY25 from 32bn currently.

Valuation

• We maintain our Buy recommendation on Hartalega with a target price of RM3.50/share based on 2.4x FY26 P/B.

Source: TA Research - 7 Aug 2024