Hartalega (HART MK): Headwinds Ahead; Keep SELL
16 July 2025
- Maintain SELL with a lower MYR1.33 TP (DCF) from MYR1.74, 15% downside. Hartalega is set to announce its 1QFY26 (Jun) quarterly results on 5 August. We expect its profit to improve slightly from 4QFY25, premised on the easing of raw material prices. That said, we expect investor sentiment to remain cautious in view of an earnings disappointment risk (Street’s earnings estimates are still rather bullish). Our call is premised on persistent challenges in cost pass-throughs, rising operating cost environment, and a weakening of USD against MYR.
- Results preview. When the 1QFY26 results are announced on 5 August, we expect Hartalega’s profitability to improve slightly from 4QFY25 due to the decline in raw material prices. Volume sales is expected to remain subdued, no thanks to the longer-than-expected inventories adjustment period by US customers. Our current earnings forecast of MYR118m for FY26 (c.MYR30m per quarter) remains conservative (21% below Street’s estimate) as we do not foresee material ASP adjustment for FY26 as cost pass-through remains challenging for 2026 given the intensified competition.
- Operating cost set to escalate further. The mandatory Employees Provident Fund (EPF) contribution for foreign labour will take effect in Oct 2025. We estimate the new policy will spike up production costs by 0.8-1% (or USD0.15-0.20 per 1,000 pieces). Meanwhile, the expanded SST of 5%, which is applicable to imported natural rubber latex and nitrile butadiene rubber latex, is expected to increase production costs by USD0.25-0.30 per 1,000 pieces (1.3-1.5%). The confluence of factors mentioned above comes at a time when the industry is already grappling with intense competition, and glovemakers have a limited ability to pass on rising costs to customers.
- The sector’s valuation may seem attractive, currently hovering around 0.9x 2025 P/BV, or 1.2SD below its historical average of 1.2x. However, given the lack of near-term re-rating catalysts, we do not encourage investors to accumulate at this level – since the risk of an earnings disappointment in the August reporting period is high. As such, we think Hartalega’s share price may undergo another correction. The last time the sector traded at such a level was in 1Q23, where sector earnings hit a trough during a period of consolidation.
- Earnings estimates revision and valuation. Our earnings estimates are largely unchanged. We lift our risk premium assumptions to take into consideration the higher risk associated with cautious investor sentiment, from the risk of an earnings dissapointing. Post adjustment, our DCF-derived TP drops to MYR1.33 (1x FY26 P/B, 1.5SD below its 3-year historical average). Key upside risks: Improving US-China ties, increase in glove ASP, faster-than-expected utilisation rate, and lower-than-expected raw material prices.
Share Performance (%)
| YTD | 1m | 3m | 6m | 12m | |
|---|---|---|---|---|---|
| Absolute | (60.5) | (11.4) | (29.7) | (56.7) | (54.1) |
| Relative | (54.1) | (12.7) | (33.5) | (54.2) | (49.1) |
| 52-wk Price low/high (MYR) | 1.53 – 4.05 | ||||
Source: Bloomberg
Forecasts and Valuation
| Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F | |
|---|---|---|---|---|---|
| Total turnover (MYRm) | 1,838 | 2,586 | 2,656 | 2,881 | 3,002 |
| Recurring net profit (MYRm) | 27 | 31 | 118 | 162 | 200 |
| Recurring net profit growth (%) | (77.1) | 14.0 | 284.8 | 37.2 | 23.6 |
| Recurring P/E (x) | 198.10 | 173.84 | 45.18 | 32.92 | 26.65 |
| P/B (x) | 1.1 | 1.2 | 1.2 | 1.2 | 1.1 |
| P/CF (x) | na | 46.89 | 17.06 | 16.88 | 13.67 |
| Dividend Yield (%) | na | 7.5 | na | na | na |
| EV/EBITDA (x) | 21.05 | 21.93 | 11.98 | 9.48 | 7.72 |
| Return on average equity (%) | 0.3 | 1.7 | 2.7 | 3.6 | 4.3 |
| Net debt to equity (%) | net cash | net cash | net cash | net cash | net cash |
Source: Company data, RHB
Emissions And ESG
Trend analysis
Lower Scope 1 and 2 emissions in FY23 due to lower natural gas and purchased electricity consumption.
| Emissions (tCO2e) | Mar-23 | Mar-24 | Mar-25 | Mar-26 |
|---|---|---|---|---|
| Scope 1 | 378,118 | na | na | na |
| Scope 2 | 114,517 | na | na | na |
| Scope 3 | 5,383 | na | na | na |
| Total emissions | 498,018 | na | na | na |
Source: Company data, RHB
Latest ESG-Related Developments
Invested more than MYR90m in strengthening wastewater systems at its manufacturing plants.
ESG Unbundled
Overall ESG Score: 2.9 (out of 4)
Last Updated: 31 Oct 2024
E Score: 2.7 (GOOD)
Hartalega has pledged to reduce its carbon emission intensity by 45% by 2030 through the installation of various production-related equipment and advanced technologies to optimise equipment efficiency and further reduce the group’s energy consumption and carbon emissions. More than 90% of product packaging are made from recyclable materials.
S Score: 2.7 (GOOD)
The group has invested over RM98m to provide first-rate workers’ accommodation, which complies with requirements of the ILO’s 11 Indicators of Forced Labour and exceeds requirements of the Workers’ Minimum Standards of Housing and Amenities (Amendment) Act 2019 (Act 446) under Malaysian law.
G Score: 3.7 (EXCELLENT)
56% of its board members are independent, and 33% are women, exceeding the Malaysian Code on Corporate Governance’s requirement of 30%. Additionally, Hartalega provides full disclosure on its directors’ remuneration, including salaries and bonuses. The company holds investor briefings regularly, embodying good transparency and disclosure practices.
ESG Rating History
| Date | Jul-23 | Sep-23 | Nov-23 | Jan-24 | Mar-24 | May-24 | Jul-24 | Sep-24 | Nov-24 | Jan-25 | Mar-25 | May-25 | Jul-25 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Rating | 2.9 | 2.9 | 2.9 | 2.9 | 2.9 | 2.9 | 2.9 | 2.9 | 2.9 | 2.9 | 2.9 | 2.9 | 2.9 |
Source: RHB
Financial Exhibits
Valuation basis
We adopt DCF valuation methodology
Key drivers
- Sales volume growth;
- Appreciation of USD against MYR;
- Lower-than-expected raw material prices.
Key risks
- Increase in gloves ASP;
- Faster-than-expected capacity expansion;
- Faster-than-expected utilisation rate;
- Lower-than-expected raw material price.
Company Profile
Hartalega is the world’s second largest glove producer by market cap.
Financial summary (MYR)
| Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F | |
|---|---|---|---|---|---|
| Recurring EPS | 0.01 | 0.01 | 0.03 | 0.05 | 0.06 |
| DPS | 0.12 | ||||
| BVPS | 1.36 | 1.26 | 1.30 | 1.35 | 1.40 |
| Return on average equity (%) | 0.3 | 1.7 | 2.7 | 3.6 | 4.3 |
Income statement (MYRm)
| Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F | |
|---|---|---|---|---|---|
| Total turnover | 1,838 | 2,586 | 2,656 | 2,881 | 3,002 |
| Gross profit | 156 | 53 | 401 | 490 | 562 |
| EBITDA | 189 | 201 | 355 | 431 | 498 |
| Depreciation and amortisation | (143) | (151) | (154) | (156) | (158) |
| Operating profit | 46 | 50 | 201 | 275 | 340 |
| Net interest | (8) | (2) | (2) | (2) | (2) |
| Pre-tax profit | 38 | 48 | 199 | 273 | 338 |
| Taxation | (19) | 26 | (46) | (63) | (78) |
| Reported net profit | 13 | 74 | 118 | 162 | 200 |
| Recurring net profit | 27 | 31 | 118 | 162 | 200 |
Cash flow (MYRm)
| Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F | |
|---|---|---|---|---|---|
| Change in working capital | (149) | (49) | 15 | (39) | (14) |
| Cash flow from operations | (58) | 114 | 313 | 316 | 390 |
| Capex | (167) | (195) | (120) | (120) | (100) |
| Cash flow from investing activities | (133) | (140) | (109) | (106) | (84) |
| Cash flow from financing activities | (111) | (466) | (2) | (2) | (2) |
| Cash at beginning of period | 1,724 | 1,427 | 923 | 1,125 | 1,333 |
| Net change in cash | (303) | (492) | 202 | 208 | 305 |
| Ending balance cash | 1,427 | 923 | 1,125 | 1,333 | 1,638 |
Balance sheet (MYRm)
| Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F | |
|---|---|---|---|---|---|
| Total cash and equivalents | 1,427 | 923 | 1,125 | 1,333 | 1,638 |
| Tangible fixed assets | 1,901 | 2,573 | 2,454 | 2,334 | 2,209 |
| Total assets | 5,258 | 4,740 | 4,894 | 5,102 | 5,357 |
| Short-term debt | 62 | 4 | 4 | 4 | 4 |
| Total long-term debt | 7 | 1 | 1 | 1 | 1 |
| Total liabilities | 613 | 421 | 422 | 419 | 414 |
| Total equity | 4,644 | 4,319 | 4,472 | 4,683 | 4,943 |
| Total liabilities & equity | 5,258 | 4,740 | 4,894 | 5,102 | 5,357 |
Key metrics
| Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F | |
|---|---|---|---|---|---|
| Revenue growth (%) | (23.7) | 40.7 | 2.7 | 8.5 | 4.2 |
| Recurrent EPS growth (%) | (77.1) | 14.0 | 284.8 | 37.2 | 23.6 |
| Gross margin (%) | 8.5 | 2.1 | 15.1 | 17.0 | 18.7 |
| Operating EBITDA margin (%) | 10.3 | 7.8 | 13.4 | 15.0 | 16.6 |
| Net profit margin (%) | 0.7 | 2.9 | 4.4 | 5.6 | 6.7 |
| Dividend payout ratio (%) | 0.0 | 540.6 | 0.0 | 0.0 | 0.0 |
| Capex/sales (%) | 9.1 | 7.5 | 4.5 | 4.2 | 3.3 |
| Interest cover (x) | 6.03 | 24.23 | 105.63 | 144.60 | 178.42 |
Source: Company data, RHB
Recommendation History
| Date | Recommendation | Target Price | Price |
|---|---|---|---|
| 2025-05-13 | Sell | 1.7 | 2.0 |
| 2025-05-13 | Sell | 1.7 | 2.0 |
| 2025-05-07 | Buy | 2.8 | 2.2 |
| 2025-02-19 | Buy | 3.3 | 2.4 |
| 2025-01-09 | Neutral | 3.7 | 3.5 |
| 2024-11-13 | Buy | 3.7 | 3.3 |
| 2024-10-06 | Buy | 3.5 | 2.8 |
| 2024-08-07 | Buy | 3.5 | 2.7 |
| 2024-05-23 | Buy | 4.1 | 3.5 |
| 2024-05-15 | Buy | 3.3 | 3.8 |
| 2024-02-07 | Buy | na | 2.6 |
| 2024-01-05 | Buy | 3.2 | 3.0 |
| 2023-11-08 | Neutral | 2.2 | 2.4 |
| 2023-08-10 | Neutral | 1.9 | 2.1 |
| 2023-06-28 | Neutral | 2.0 | 1.9 |
Source: RHB, Bloomberg
RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
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