HARTA: Efficiency Gains Propel Earnings, Analyst Raises Target Price

The glove manufacturing sector saw a mixed performance in the latest quarter, with one prominent player reporting its 2QFY26 core net profit at MYR16 million, marking a significant 93% quarter-on-quarter increase. This brought the first-half fiscal year 2026 (1HFY26) figure to MYR24.3 million, a 78% rise year-on-year. While these results aligned with the analyst’s own expectations, representing 29% of its full-year forecast, they fell short of the broader Street consensus, which had projected a higher 19%. Revenue experienced a slight 2.4% sequential dip, primarily attributed to the strengthening of the Malaysian Ringgit against the US Dollar.

Performance and Efficiency Drivers

Despite the revenue headwinds, the company demonstrated robust operational improvements, evidenced by a 2 percentage point increase in its EBITDA margin quarter-on-quarter. This enhancement was largely due to diligent cost rationalization efforts, lower raw material costs, and successful hedging outcomes. Sales volume also saw a modest increase of 1.3% quarter-on-quarter, reaching 5.98 billion gloves. These internal efficiencies underscore the company’s ability to manage costs effectively amidst a challenging market.

Navigating Market Headwinds

The operating environment, however, remains competitive. The utilisation rate stood at 68%, though exceeding 90% across active production lines, suggesting room for further optimization. Intensifying average selling price (ASP) pressure in the US market led to a 2% quarter-on-quarter drop in blended ASP, settling at USD21.30 per 1,000 pieces. Furthermore, the regional sales mix remained unfavourable, with the US to non-US sales ratio at 48:52, a shift from the previous quarter. Competition from China-based manufacturers, which are ramping up capacity in Indonesia and offering gloves at ASPs USD1-2 below prevailing US market rates, continues to exert pressure on the industry.

Strategic Expansion and Future Plans

Looking ahead, the company is actively pursuing strategic initiatives to bolster its market position. Five lines at Plant 9, contributing 4.9 billion glove pieces annually, have been commissioned, with an additional seven lines scheduled for completion by March 2026 to meet anticipated demand. The reactivation of idle capacity at Plants 3 and 4 will be contingent on prevailing market conditions and ASP trends. Significant investments are also planned, with a MYR300 million capital expenditure over the next 18 months allocated for upgrading idle plants with advanced automation and AI technologies, including automated stripping machines and AI vision systems.

Analyst adjustments to future earnings forecasts for FY26-28F were minimal for FY26 and FY27 but saw a 13% cut for FY28F, mainly reflecting a revised FX forecast (USD/MYR rate of 4.12 by end-CY26). These adjustments, however, were partially offset by higher production volumes. The weighted average cost of capital (WACC) has improved, dipping to 8.9% from 10.3%, reflecting a higher beta and lower cost of equity assumption.