Hartalega's 1Q profit down 60% amid weak demand, pricing pressure
Revenue slipped 5.3% year-on-year to RM553 million, compared to RM583.8 million in 1QFY2025. Profit before tax came in at RM14 million, the group said in a statement.
The weaker performance was attributed to deferred orders from US buyers, who are managing front-loaded inventories and responding cautiously to ongoing US tariff developments.
Hartalega also cited pricing pressure in non-US markets, particularly due to excess supply from Chinese manufacturers.
Operating profit was further impacted by the strengthening ringgit, lower ASPs, and weaker cost absorption resulting from reduced capacity utilisation.
'The first quarter reflects the ongoing recalibration taking place in the global glove sector,' said Hartalega CEO Kuan Mun Leong in a statement.
'With overcapacity still persisting and operating costs rising, competition remains intense, especially from China and other regional manufacturers.'
He added that US tariff uncertainty is weighing on demand and prompting a shift in sourcing strategies among US importers.
'Nevertheless, we are anchored by our long-term strategy, focusing on enhancing production efficiency and cost optimisation, investing in advanced automation, maintaining robust fiscal discipline, and sharpening our sales approach,' Kuan said.
Despite the near-term challenges, Hartalega remains positive on long-term demand, driven by global healthcare needs and rising hygiene awareness. — TMR
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New Straits Times
14 hours ago
- New Straits Times
Glove giants sink to multi-year lows
KUALA LUMPUR: Shares of Malaysia's glove giants tumbled to multi-year lows on Wednesday, dragged down by disappointing earnings, persistent concerns over a global supply glut and looming United States import tariffs. Often referred to as the "Big Four", Top Glove Corp Bhd, Hartalega Holdings Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd were among the most actively traded counters on Bursa Malaysia throughout the session. Top Glove closed two sen or 3.1 per cent lower at 61.5 sen — its lowest level in 34 months — with over 46 million shares changing hands. The stock has slumped 54 per cent year-to-date from RM1.35 on Jan 2. Notably, Hartalega fell to its lowest level in more than a decade since April 2013, following a disappointing quarterly result that missed market expectations. The share closed at RM1.24, down eight sen or 6.1 per cent that value the company at RM4.7 billion. A total of 25 million shares changed hands. It has dropped 68.8 per cent this year from RM3.97 early this year. Supermax slid 2.5 sen or 4.7 per cent to 51.5 sen, hitting a five-year low on volume of over 12.8 million shares. Year-to-date, the stock has shed more than half of its value. Kossan dropped 4 sen or 3.1 per cent to RM1.23, its lowest level in two years, with 10 million shares changing hands. The counter has plunged nearly 56 per cent year-to-date. Tradeview Capital portfolio manager Ng Tzyy Loon said that with the glove sector currently in a down cycle, market sentiment plays a significant role in driving share price movements. He said many investors were hoping to see more positive developments but what they received were more negative news from Hartalega's management. "Though Harta did mention that the restocking of gloves could help support future sales, the company remains cautious about supply spillover from Chinese manufacturers. "And we all know that the Chinese manufacturers can be aggressive when it comes to dumping stock at price that are marginally above – if not below – their cost just to survive," he told Business Times. Ng added that the 19 oer cent US tariff places immediate competitive pressure on Malaysia's pricing advantage, with companies heavily exposed to the US market facing the greatest earnings risk. "Of course, to fully assess this impact, we need to consider the price elasticity of demand for gloves. "However, when we examine the gloves we export to the US – which are primarily medical gloves – they represent less than one per cent of total US medical expenditures. "Therefore, we believe demand should not decline substantially," he added. Despite their depressed share prices, Ng said the Big Four glovemakers are still trading at forward price-to-earnings (P/E) ratios of no less than 30 times, a level considered stretched by many market watchers. "While a stock can trade at a high P/E ratio just before fundamental or sectoral cycle improvement kicks in, we don't see this happening in the near future. "Investors joining the fray must be fully aware of the risks they are taking," he said. Meanwhile, Malacca Securities Bhd research head Loui Low said the average selling prices (ASPs) in the glove industry have largely stabilised and are unlikely to recover meaningfully in the near term. "The risk now is that things are becoming commoditised. ASPs can't go higher and may continue to stabilise around current levels for now," he said. Low also noted that the 19 per cent US tariff on Malaysian gloves could further dampen investor sentiment, although the overall impact remains uncertain. "But no one knows what tariffs China will eventually face. If China also gets hit with a 19 per cent tariff, then it's possible the playing field would remain level and we might not see a significant shift in orders back to Malaysia," he said. TA Securities analyst Tan Kong Jin said Malaysia's estimated market share of medical gloves in the US has increased to about 60 per cent in the first half of this year from 44. per cent in December 2024. He said the higher market share was driven by the US tariffs on Chinese-made medical gloves from 7.5 per cent to 50 per cent in January 2025 and is currently at 80 per cent. He noted that Hartalega's exposure to the US market is the highest at 57 per cent, followed by Kossan (52 per cent), Supermax (28 per cent) and Top Glove (26 per cent). "We are mildly negative on the latest tariff updates as Malaysia's pricing advantage has reduced significantly against other neighbouring Southeast Asian countries. "Currently, Thailand, Indonesia and Cambodia match Malaysia rate at 19 per cent, while Vietnam is subject to a 20 per cent duty," he said in a note. On the flip side, Tan said Malaysia's market share is expected to remain at 60 per cent in 2025 as the tariff rates for competing nations are very similar. However, he said customers are likely continue to push back in terms of cost sharing as oversupply remains. "Currently, Malaysia companies' utilisation rates are still well below the optimum levels. For instance, Hartalega is running at 69 per cent while Top Glove is at 61 per cent, based on the lastest quarterly numbers. "Besides that, big China glove manufacturers like Intco and BlueSail will continue to expand into Vietnam, Indonesia and Cambodia, which will result in a higher supply. "We note that Intco's Vietnam pricing is expected to be at least 15 per centhigher than their Chinese manufacturing plants," he added. TA Securities kept its "Underweight" stance on the glove sector as the global oversupply is expected to persist for at least the next three years amid increasing competition from Thailand, Indonesia and Vietnam. Tan said the margins for the glove industry would not revert to prepandemic for the foreseeable future. Furthermore, Malaysian glove players are likely to continue losing market share in the non-US markets to the Chinese manufacturers.
The Star
16 hours ago
- The Star
Cautious market outlook for Hartalega
CIMB Research said near-term catalysts remains limited as tariff-related uncertainties and expansion of Chinese players' overseas capacity could further weigh on the industry. PETALING JAYA: The market remains cautious on the outlook for glovemaker Hartalega Holdings Bhd despite efforts on cost optimisation and the gradual recovery in demand as inventories from restocking diminishes. The company released its first quarter ended June 30, 2025 of financial year 2026 (FY26) results on Tuesday that were below market expectations due to lower demand and weaker average selling prices (ASPs). While the company told analysts at a briefing that it expects gradual recovery in FY26, observers have largely maintained a cautious stance due to oversupply from Chinese glovemakers leading to competitive ASPs and a looming RM101mil tax issue stemming from additional assessment for the years 2017 to 2022. CIMB Research, which maintained a 'hold' rating on the stock with a lower target price (TP) of RM1.45 from RM2.30, said near-term catalysts remains limited as tariff-related uncertainties and expansion of Chinese players' overseas capacity could further weigh on the industry. 'However, we see limited downside to the stock at current levels, with price-to-book value valuations now back to levels last seen during the glove supply glut in 2023, when industry-wide losses were prevalent,' it added. MBSB Research has kept its 'neutral' recommendation on the stock with a TP of RM1.24 from RM2.45. The research house pointed out to the thinning profit margins due to continued pricing pressure from Chinese glovemakers in the non-US markets. 'Note that the blended ASP contracted by 5% year-on-year. 'Given the pressure on both revenue and cost, we observed that the profit margin contracted to 2.4% from 6.8% a year ago,' it said, adding that the tough operating environment has translated to downward earnings revision of more than 50% for FY26 and FY27. Phillip Capital has also maintained a 'hold' rating with a TP of RM1.34 from RM1.64, reflecting lower ASP assumptions of US$19 to US$21 per 1,000 pieces from US$20 to US$22 as well as reduced sales volume in line with the company's latest guidance of six billion to six-and-a-half billion pieces. Maybank Investment Bank Research has maintained a 'sell' call with a TP of RM1.35 from RM1.41. The reserach house noted that that the company would continue to focus on its core nitrile glove segment and cost optimisation efforts, including workforce redeployment together with investing RM200mil to RM300mil over the next 18 to 24 months in automation and energy-saving upgrades. UOB Kay Hian Research expects the challenging outlook to continue pressuring sales and while the company expects US demand to recover, intensifying Chinese competition and oversupply dynamics continue to impact earnings. It has maintained a 'hold' call with a TP of RM1.40 from RM1.55.
BusinessToday
a day ago
- BusinessToday
HLIB Has "Uncertain Outlook" View On Hartalega
Hartalega Holdings Berhad reported a core Profit After Tax and Minority Interest (PATMI) of RM12.2 million for the first quarter of its financial year 2026 (1QFY26), a 7.0% increase quarter-on-quarter (QoQ) but a significant 72.7% drop year-on-year (YoY). While these results were broadly in line with HLIB Research's expectations, they fell short of consensus forecasts. The 1QFY26 core PATMI was calculated after excluding extraordinary items of RM0.4 million, which included gains from property, plant, and equipment disposal, fair value gains on derivatives, and a reversal of allowance for expected credit loss (ECL) on trade receivables. These positive adjustments were partially offset by RM15.4 million in realized and unrealized forex losses. No dividends were declared for the quarter. Revenue Decline Despite Cost Controls Hartalega's revenue declined by 9.6% QoQ, primarily due to a 3.1% drop in sales volume and a 6.7% decrease in average selling prices (ASP) in Ringgit terms. The lower sales volume was attributed to front-loading activities by US customers in 3QFY25, potential transhipment activities via Vietnam, Thailand, and Indonesia, and intense competition from Chinese players in non-US markets. The weaker ASP was a result of competitive pricing by regional players amid subdued demand, a 3.2% depreciation of the US Dollar against the Ringgit, and a 3.3% decline in NBR prices. Despite the revenue contraction, core PATMI improved QoQ, boosted by lower operating costs stemming from ongoing automation initiatives and headcount rightsizing. On a YoY basis, revenue decreased by 5.3%, with core PATMI dipping at a greater pace due to negative operating leverage, lower net interest income, and higher depreciation expenses. Outlook and Strategic Initiatives During its recent briefing, HLIB said Hartalega expressed continued concern over the industry's supply-demand equilibrium, now projecting a potential delay in rebalancing from 2026 to 2029. To maintain competitiveness, the company plans to invest RM200-300 million over the next 9-15 months in automation and energy efficiency enhancements. These initiatives include revamping glove stripping machines, installing AI-driven vision inspection systems, and modifying production lines for better energy and chemical efficiency. For 2QFY26, Hartalega aims to deliver approximately 2.2 billion pieces per month, an increase of about 12% QoQ, driven by an anticipated pickup in orders from US customers starting in August 2025. Group blended ASP is expected to remain flat QoQ, with the weakness in generic medical nitrile rubber gloves offset by a shift towards more premium products. Input costs for NBR are expected to be flat, while natural gas tariffs are projected to decline by 1.5% QoQ. Tax Bill and Financial Position Separately, Hartalega announced it received additional tax bills from the Inland Revenue Board (IRB) amounting to RM101 million (RM0.03 per share or 2.2% of market cap) for the years 2017-2022. The company is currently seeking legal advice and evaluating options, including initiating a formal appeal. Despite this, Hartalega maintains a strong financial position with a net cash balance of RM986 million (or RM0.29/share) as of 1QFY26, providing financial flexibility. HLIB Research is maintaining its FY26 forecasts but has cut its FY27 forecasts by 13.5% to reflect a more uncertain outlook. They are introducing an FY28 core PATMI forecast of RM243.8 million. The research house reiterated its 'Hold' recommendation on Hartalega, with a lower target price of RM1.32 (down from RM1.48).
