Hartalega Holdings Berhad - Recovery on the cards
Wed, 07-Feb-2024 08:16 am
by Research Team • Apex Research

Counter

HARTA (5168)

Target Price (RM)

2.11

Recommendation

Sell

  • Results review. 3QFY24 core net profit stood at RM22.4m vs core net loss of -RM31.9m in 3QFY23, propelled by an improved operational landscape and cost savings from operational rationalisation efforts. Revenue for the quarter, however, declined 10.0% yoy to RM415.6m due to weaker ASP.

  • Results exceed expectations. 9MFY24 core net loss at -RM2.4m came ahead of our expectations of core net loss at -RM15.9m as well as consensus forecasted net profit of RM33.9m. The variance is mainly attributed to higher EBITDA and better-than-expected recognition of gloves sales.

  • Operations Highlights. During 3QFY24, HARTA utilisation rate ticked lower to 42.6% from 43.9% in the previous quarter due to ongoing plant transitions at Bestari Jaya. Despite this, with a strong EBITDA of RM78.9m, the group maintained bottom-line profitability. Looking forward, we reckon HARTA's utilisation rate to stabilise around 42.0% by the end of FY24.

  • Industry Highlights. While stockpiles from pandemic appears to have near depletion and orders are picking up, the oversupply capacity that remains largely in place may keep ASP at current levels. Moving forward, we expect stability in ASP to remain at approximately US$19-20/1000 pieces as the threat of competition from China and Thailand remains largely in the picture.

  • Outlook. Having decommissioned Bestari Jaya plant, HARTA is now committed to expand production capacity through NGC 1.5 (plant 8 & 9) that will house 12 production lines and is expected to generate 11.0bn pieces of gloves per annum. Looking ahead, the group aims to boost production to tailor into the recovery in demand.

  • Valuation. Revised our earnings forecast to RM22.3m and RM128.9m for FY24F and FY25F respectively to adjust for the lower sales volume, higher effective tax rate and higher EBITDA margin. Re-iterate our SELL recommendation on HARTA, but with a higher target price of RM2.11 based on 1.5x of BV.

  • Risk. Changes in global demand and swifter-than-expected recovery in ASP. Exposure to foreign exchange risk and volatile purchase pattern.

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