Executive Summary
HARTA’s 4QFY25 result exceeded expectations. Quarterly CNP stood at RM11.4m (-54.6% qoq, +434% yoy), bringing the FY25 CNP to RM129.8m, marking a turnaround from FY24 CNL of RM10.4m.
Looking ahead, we expect HARTA's blended ASP to be in the range of USD 19-20/1000pcs and weaker sales in 1HFY26 due to softer demand from the US market, driven by concerns over tariff policy uncertainties.
After incorporating FY25 results, we tweaked our FY26 and FY27 earnings forecasts by -0.4% and -4.0% respectively. We also introduced FY28 earnings forecast of RM175.0m.
Reiterate HOLD with lower TP of RM1.93/share (from RM2.19), based on unchanged 1.5x PB multiple on revised FY26F BVPS of RM1.28, and appraised with three-star ESG rating.
Exceed expectations. Hartalega’s (HARTA) FY25 core net profit (CNP) of RM129.8m, exceeded expectations, coming in at 115% of our in-house forecast and 151% of consensus estimates. This outperformance was mainly due to a higher-than-expected sales volume and average selling price (ASP). No dividend was declared in this quarter.
YoY. Excluding exceptional items such as forex losses (+RM21.1m), fair value gain in derivatives (-RM21.6m), reversal of allowance for inventories (-RM4.1m), gain on disposal of PPE (-RM3.2m), and other adjustments (+RM4.6m), 4QFY25 CNP surged 434% yoy to RM11.4m. This was driven by higher sales volume and an improved operating margin, which was underpinned by an increase in ASP (+c.4%) and enhanced operational efficiencies.
YTD. The Group swung back into black in FY25, registering a CNP of RM129.8m, compared to core net loss (CNL) of RM10.4m in FY24. The recovery was driven by higher ASP (+5.8% yoy), increased sales volume (+39.8% yoy), and a RM26.5m tax income in FY25 (compared to RM18.6m tax expense in FY24), primarily due to the recognition of RM59.8m in deferred tax assets related to CAPEX in 2QFY25.
QoQ. CNP declined by 54.6% qoq to RM11.4m, primarily due to c.20% drop in sales volume stemming from muted US demand. Despite a marginal increase in ASP (+2.5% qoq in USD and +4.0% qoq in MYR), EBIT margins dropped by 2.1%-pts. This underscores the importance of the US market for HARTA, given its higher margin contribution compared to the Asian market.
Strategic acquisition on Medico Sdn Bhd On 23 Apr 2025, HARTA completed the acquisition of a 70% stake in MEDICO, a well-established Malaysian healthcare distributor with strong ties to government hospitals. While the initial financial contribution is expected to be minimal, its strategic importance lies in securing market access to government hospitals, enabling product diversification, and building momentum for future acquisitions. Management highlighted HARTA's leading position as a glove supplier to private hospitals in Malaysia and noted that this synergistic acquisition positions them to capture government glove supply contracts in the future.
Outlook. Post-pandemic, global rubber glove demand has been recovering gradually, with notable growth observed in 2024. While this recovery is expected to continue into 2025, US demand is anticipated to be soft in the 1HFY26 due to inventory drawdowns and front-loading activities carried out in late 2024. However, HARTA faces several headwinds, including oversupply in non-US markets as Chinese players redirect shipments originally bound for the US to other regions, the impacts of US tariffs, and rising operating costs (minimum wage, fuel subsidy rationalisation) in Malaysia. HARTA is currently focused on: (i) operational efficiency through workforce rightsizing, targeting a 10-15% reduction via streamlining and an additional 15% through automation, which is in progress and expected to be completed within 18 months; (ii) For capacity expansion, the total installed capacity is projected to reach 37 bn pieces annually with Plant 8 has fully operational in 4QFY25. Plant 9 is targeted to commence in 4QFY26, and its new lines will feature more efficient production and advanced technologies; and (iii) capturing several Malaysia government hospital’s orders through the Group’s recent strategic acquisition of Medico.
Near-term (i) ASPs are expected to soften (ranging at a blended USD 19-20/1000 pieces) due to softer US demand. Management expects an approximate 1-2% sales volume drops in the next quarter due to the reciprocal tariffs announced in early April 2025, ASP may be under pressure as well as some customers are requesting for lower prices due to softening raw material costs. The demand-supply equilibrium is not expected until 2028, suggesting a tough but gradually normalising market. The outlook for 2HCY25 remains clouded by heightened uncertainty surrounding potential policy changes.
Earnings Revision. After incorporating FY25 results, we tweaked our FY26 and FY27 earnings forecasts by -0.7% and -4.0% respectively. We also introduce FY28 earnings forecast of RM175.0m.
Valuation. We reiterate our HOLD recommendation with a lowered target price of RM1.93 (previously RM2.19) based on unchanged 1.5x PB multiple (1.5SD below its 2-year historical mean) on the revised FY26F BVPS of RM1.28. This revision reflects a lower book value per share (BVPS) after incorporating the FY25 numbers.
Risk. Increase in raw material prices, weakening of USD against MYR, policy changes such as US tariffs.
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Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.203518 | 4.236873 |
EUR | 4.944847 | 4.949827 |
CNY | 0.591811 | 0.592408 |
HKD | 0.539572 | 0.543369 |
SGD | 3.274410 | 3.297453 |