Hartalega downgraded amid sector uncertainty despite earnings surge
KUALA LUMPUR: Hartalega Holdings Bhd has been downgraded to a "hold" rating from "buy" as analysts grow cautious over the company's near-term prospects amid increasing uncertainty in the global glove industry.
Hong Leong Investment Bank Bhd (HLIB Research) has lowered its target price for Hartalega to RM2.16 per share, citing increased uncertainty over the industry's supply-demand equilibrium as it heads into 2026.
The new target price is based on a more conservative price-to-earnings (P/E) multiple of 26 times, down from 32 times, applied to the glovemaker's unchanged calendar year 2026 earnings per share (EPS) forecast of 8.3 sen.
The revised valuation comes despite Hartalega's stronger-than-expected earnings in the fourth quarter ended March 31, 2025, which came in at 192 per cent of HLIB Research's full-year forecast.
Hartalega's core profit after tax and minority interests (PATMI) for the fourth quarter of financial year 2025 (4QFY25) came in at RM11.4 million, representing a significant year-on-year increase of 8.9 times, despite a 54.6 per cent decline compared to the previous quarter.
This brought the group's full-year FY25 core PATMI to RM68.6 million—a 4.4-fold jump from the previous financial year—driven by higher-than-anticipated revenue supported by more favourable average selling prices (ASP).
"Despite the upbeat results, we maintain our FY26–27 forecasts as we expect the performance in the first quarter of financial year 2026 (1QFY26) to be weighed down by the ringgit's 4.3 per cent appreciation against the US dollar since late April 2025," it said in a note.
On a positive note, HLIB Research said the current 145 per cent US tariff on China imports could encourage a gradual demand shift away from vinyl gloves to nitrile rubber gloves, mainly from Malaysian manufacturers, by US buyers.
This, it said, could help to absorb the additional rubber glove capacity coming from Chinese players.
China dominates the US vinyl glove market with a 70-75 per cent share and has been selling for US$9-10 per 1,000 pieces.
However, the imposition of the tariff would drastically inflate the price of Chinese vinyl gloves to US$22-24.5 per 1,000 pieces, which is more expensive than generic nitrile rubber gloves at US$15-16 per 1,000 pieces.
"While both vinyl and nitrile gloves are Type 1 allergy-free, nitrile gloves offer superior elasticity and provide a better barrier against contamination.
"Moreover, the steep US reciprocal tariffs on Vietnam at 46 per cent and Indonesia at 32 per cent, presently on a 90-day pause, could discourage Chinese glove makers from expanding there," HLIB Research added.
RHB Research, meanwhile, said that its late-March sector upgrade has largely materialised, with stocks under its coverage posting gains of 7 to 15 per cent.
The firm has maintained a BUY on Hartalega with a revised target price of RM2.83 (from RM3.30), offering 33 per cent upside potential.
It noted that Hartalega is currently trading at 1.65 times its 2025 price-to-book value (P/BV), which is 0.3 standard deviations below its three-year historical mean of 1.8 times.
The research firm views this valuation as attractive, especially in light of the anticipated earnings recovery in 1QFY26 following the completion of the inventory adjustment cycle.
"The management guided that the May orderbook had picked up to 2.3 billion pieces from an average monthly orderbook of 2 to 2.1 billion pieces, with 1QFY26 guided volume to be within the range of 6 to 6.5 billion pieces, indicating a 6 per cent QoQ growth at the higher end of guidance.
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