HARTA: Strong Earnings Beat Driven by Cost Efficiency, Target Price Raised
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A major glove manufacturer reported a significant surge in its third-quarter net profit for the financial year 2026, surpassing street expectations. This robust performance was primarily attributed to aggressive cost optimisation initiatives and the recognition of a tax credit during the period.
Performance Review
For the third quarter ending February 2026 (3QFY26), the company recorded a net profit of RM31.7 million, marking a substantial 62.5% increase from RM19.5 million in the corresponding period last year. Core net profit, which excludes certain one-off items, saw an even more impressive 87% year-on-year surge to RM46.3 million from RM24.8 million previously. This quarterly performance exceeded street estimates by a remarkable 116%. Despite a decline in revenue, which fell 28.6% year-on-year to RM527.3 million, the significant uplift in profitability underscores the effectiveness of its strategic operational adjustments.
Operational Efficiency and Profitability Drivers
The impressive profit growth was largely driven by the company’s strong focus on cost optimisation and efficiency gains. The operating profit margin saw a significant improvement, rising to 6.9% in 3QFY26 from 2.5% in the preceding quarter (2QFY26) and 4.8% in 3QFY25. This was further bolstered by the recognition of a tax credit. These initiatives collectively mitigated the impact of softer average selling prices (ASPs), which decreased by 12% year-on-year, and a challenging demand environment characterized by lower utilization rates.
Future Outlook and Strategic Initiatives
Looking ahead, the company is committed to enhancing its operational capabilities and market positioning. Management plans to commission nine new production lines equipped with automated capabilities within its existing plants by February 2027. This expansion is targeted to boost production capacity to 2.3 billion pieces per month by 2QFY27 and further to 3.3 billion pieces by FY2028. Continued efficiency gains and the introduction of new plant capacity are expected to underpin future earnings, potentially offsetting global oversupply conditions and the expected appreciation of the Ringgit against the USD, which could impact export competitiveness.
Analyst Recommendation
TA SECURITIES maintains a positive outlook on the company’s prospects, upgrading its recommendation to BUY with a revised target price of RM0.25. This target price represents a significant upside of 25.0% from the last traded price of RM0.20, reflecting confidence in the company’s ability to navigate market challenges and leverage its operational efficiencies for sustained growth.
