HARTA: Glove Manufacturer Maintains Flat Earnings on Cost Control, Faces Persistent Headwinds
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.89 (+1.1%) |
| Last Traded | RM0.88 |
| Recommendation | HOLD |
A recent investment bank research report indicates that the glove manufacturing sector continues to navigate a challenging environment marked by structural headwinds and global overcapacity. Despite efforts to enhance operational efficiencies and control costs, earnings for the upcoming third quarter of FY2026 are projected to remain broadly flat, with a modest increase in sales volumes offset by an appreciating local currency. The report maintains a ‘HOLD’ rating on the company, adjusting its target price slightly downwards.
Performance Review
Sales volumes showed a modest increase in the second quarter of FY2026, rising by 1.3% quarter-on-quarter to 6.0 billion pieces. This positive momentum is expected to continue into the third quarter, with sales volumes projected to reach 6.3 billion pieces (+5% QoQ), primarily driven by restocking activities in the US market. The company’s plant utilisation rate is also anticipated to improve to approximately 70% in 3QFY26, up from 68% in the previous quarter, though still below the 86% achieved in 3QFY25.
Operational efficiency has been a key focus, with the company undertaking automation initiatives and rationalising its headcount, leading to a 16% reduction in personnel and an over 8% decrease in overall manufacturing costs. Furthermore, stable raw material costs are providing some relief; nitrile latex prices fell by 10.8% QoQ, and domestic natural gas prices are expected to trend lower in 2026. However, average selling prices (ASPs) are expected to hold steady at US$20-21 per thousand pieces, with the appreciation of the Ringgit against the US Dollar partially offsetting any gains.
Future Outlook and Challenges
Looking ahead, while plant utilisation is projected to rise to 75% in FY2026, supported by stronger US demand, overall earnings for FY2026 are expected to dip by 5% year-on-year, largely due to the stronger Ringgit. The report anticipates an earnings recovery from FY2027 onwards, with utilisation rates potentially reaching 80% in FY2027 and 85% in FY2028, bolstered by robust global demand and a reduction in inventory overhang. However, ASPs are forecast to remain in the US$20-21 per thousand pieces range through FY2028, reflecting persistent competition, especially in non-US markets.
The company also plans to recommission Plants 3 and 4, each with a capacity of 4.7 billion pieces, once market supply and demand dynamics become more favorable. This recommissioning is expected to be a longer-term endeavor due to the older equipment and configuration of these facilities. Key risks to the outlook include fluctuations in sales volume, ASP movements, raw material cost trends, currency appreciation, and intense competition from Chinese glove manufacturers.
Investment Recommendation
The investment bank maintains its ‘HOLD’ recommendation, with a revised 12-month target price of RM0.89, down from the previous RM1.04. This adjustment reflects a lower Price-to-Book Value (P/BV) multiple of 0.6x (from 0.7x), or -1.5 standard deviations below its 3-year historical average. The reduced valuation factors in ongoing structural challenges, global overcapacity, and persistent subdued investor sentiment in the near to medium term.
