HARTA: Glove Manufacturer Exceeds Expectations on Cost Controls, Target Price Raised

A prominent glove manufacturer recently reported core earnings significantly above expectations for its nine-month fiscal year 2026 (9MFY26), largely driven by robust cost management and a favorable tax rate. The company’s adjusted core net profit of RM71 million surpassed both analyst and consensus full-year forecasts by over 100%, indicating a stronger-than-anticipated recovery.

Performance Review

The impressive earnings beat stemmed primarily from lower-than-expected operating costs. Strategic cost optimisation initiatives, coupled with continuous automation efforts, played a pivotal role in enhancing production efficiency. This was further bolstered by lower raw material costs, contributing to improved margins. Additionally, the company benefited from a lower effective tax rate in 3QFY26, attributed to the utilisation of previously unabsorbed allowances and brought-forward losses. This combination of factors lifted the EBITDA margin for the period, reflecting better overall operating efficiencies.

During the third quarter of FY26 (3QFY26), the company experienced a slight dip in average selling prices (ASP) to US$20-21 per thousand pieces, a 5% sequential decline. However, this was offset by a 3% quarter-on-quarter increase in sales volume, reaching 6.2 billion pieces. Management expects sales volume to range between 6.1-6.5 billion pieces in the Jan-Mar26 period. Overall group utilisation improved to approximately 70% in 3QFY26 from 68% in 2QFY26, primarily due to stronger demand from the US market. Critically, active plants (excluding hibernated Plants 3 and 4) maintained robust utilisation levels above 95%. Plant 9 remains on schedule for commissioning by March 2026.

Future Outlook and Challenges

Despite the positive results, the company maintains a cautious stance on future expansion, adopting a “wait-and-see” approach amidst an evolving industry landscape. Channel checks suggest potential delays for new Chinese-owned glove plants in Indonesia, which have an estimated capacity of 8 billion pieces. Key risks to the outlook include fluctuations in sales volume and average selling prices, raw material trends, sustained strength of the Ringgit against the US Dollar, and competitive pricing pressures from Chinese manufacturers.

In light of the strong 3QFY26 performance, particularly the lower operating cost structure and revised effective tax rate for FY26 (from 24% to 6%), analysts have significantly raised their FY26-28E earnings forecasts by 79-112%. The investment bank has reiterated its HOLD recommendation for the stock, with a revised 12-month target price of RM1.00, up from RM0.89. This revised target price is based on an unchanged 0.7x Price-to-Book Value (P/BV) multiple on FY27E Book Value Per Share.