RHB
6 August 2025
Shariah Compliant
Malaysia Results Review
Consumer Cyclical | Rubber Products
Hartalega (HART MK): Outlook Remains Glum; Keep SELL
- Maintain SELL, new DCF-derived TP of MYR1.14 from MYR1.33, 14% downside. Hartalega reported a 1QFY26 (Mar) core net profit of MYR8.3m, below our and consensus estimate. Although the stock is trading at 1.4SD below its 3-year historical mean, we do not advocate investors to accumulate, given the lack of near-term re-rating catalysts. Our SELL call is premised on persistent challenges in cost pass-throughs, the rising operating cost environment, and the weakening of the USD against the MYR. Our TP includes a 2% ESG discount, since HART’s ESG score is below the country median.
- Results overview. 1QFY26 earnings came up to 7% and 6% of our and Street full-year estimates. The weaker-than-expected performance was primarily driven by cautious customer demand in response to uncertain tariff developments, persistent pricing competition in non-US markets, as well as challenges in passing through costs to customers. HART’s sales volume for the quarter amounted to 5.9bn pieces (-3% QoQ, flattish YoY), which led to a 2ppt QoQ drop in its plant utilisation rate to 67%, as it bore the brunt of prolonged front-loading purchases from US customers. Its ASP dropped by 3.6% QoQ to USD21.70 per 1,000 pieces, as cost pass-throughs remain challenging on the back of softening raw material prices.
- Operating environment still challenging. With the mandatory Employees Provident Fund contribution for foreign labour set to take effect in October, alongside increased costs brought about by the expanded Sales and Service Tax or SST, HART’s profitability should remain under pressure. The rubber glove industry has been surviving on razor-thin margins due to the loss of pricing power, as supply has outstripped demand since the entry of competitors from China. We expect HART to chalk a mild earnings improvement – premised on a recovery in sales volume (as customers replenish stocks), and a staff rationalisation plan, which will be offset by a subdued ASP outlook.
- Earnings adjustment. We slash FY26-28F earnings by 39%, 30% and 25% after lowering ASP and sales volume assumptions to align with management’s guidance (ie quarterly output of 6.6bn pieces starting next quarter). We expect ASP to remain flattish in 2QFY26 due to the softening of raw material prices (-6% QTD) – which more than offset the impact of weakening USD (-1.4% QTD). Post adjustment, we derive a lower DCF-based TP of MYR1.14 (from MYR1.33), which implies a FY26 P/BV of 0.9x, 1.7SD below its 3-year historical mean of 1.76x. Looking ahead, we expect HART’s profitability to remain pressured, no thanks to the various headwinds mentioned above.
- Key upside risks: Intensifying trade tensions between the US and China, less competition for market share, increase in glove ASP, faster-than-expected capacity expansion, and a higher-than-expected utilisation rate.
Forecasts and Valuation
| Forecasts and Valuation | Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F |
|---|---|---|---|---|---|
| Total turnover (MYRm) | 1,838 | 2,586 | 2,479 | 2,693 | 2,812 |
| Recurring net profit (MYRm) | 27 | 31 | 73 | 114 | 150 |
| Recurring net profit growth (%) | (77.1) | 14.0 | 136.4 | 56.7 | 32.0 |
| Recurring P/E (x) | 167.62 | 147.09 | 62.21 | 39.71 | 30.08 |
| P/B (x) | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 |
| P/CF (x) | na | 39.68 | 13.93 | 17.35 | 13.51 |
| Dividend Yield (%) | na | 8.9 | na | na | na |
| EV/EBITDA (x) | 17.71 | 17.92 | 11.73 | 9.09 | 7.26 |
| Return on average equity (%) | 0.3 | 1.7 | 1.7 | 2.6 | 3.3 |
| Net debt to equity (%) | net cash | net cash | net cash | net cash | net cash |
Overall ESG Score: 2.9 (out of 4)
E Score: 2.7 (GOOD)
S Score: 2.7 (GOOD)
G Score: 3.7 (EXCELLENT)
Please refer to the ESG analysis on the next page
Emissions And ESG
Trend analysis
HART recorded 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 |
Latest ESG-Related Developments
HART has invested over MYR90m on strengthening the wastewater systems at its manufacturing plants. Hartalega was the silver medal winner of The Edge Malaysia ESG Awards 2024 healthcare category. The company become the first in the rubber glove industry to announce third-party reviewed carbon footprint data for three of its core products, setting a new industry ESG benchmark.
ESG Unbundled
Overall ESG Score: 2.9 (out of 4)
Last Updated: 31 Oct 2024
E Score: 2.7 (GOOD)
HART has pledged to reduce its carbon emissions intensity by 45% by 2030. It aims to achieve this by installing production-related equipment and advanced technologies to optimise equipment efficiency, and further reduce total energy consumption and carbon emissions. More than 90% of its product packaging is made from recyclable materials.
S Score: 2.7 (GOOD)
The group has invested over RM98m to provide first-rate workers’ accommodation, which complies with specification of the International Labour Organisation’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, HART 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
The ESG rating has been consistently 2.9 from August 2023 through August 2025.
Financial Exhibits
| Financial summary (MYR) | Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F |
|---|---|---|---|---|---|
| Recurring EPS | 0.01 | 0.01 | 0.02 | 0.03 | 0.04 |
| DPS | 0.12 | ||||
| BVPS | 1.36 | 1.26 | 1.28 | 1.32 | 1.36 |
| Return on average equity (%) | 0.3 | 1.7 | 1.7 | 2.6 | 3.3 |
| Valuation metrics | Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F |
|---|---|---|---|---|---|
| Recurring P/E (x) | 167.62 | 147.09 | 62.21 | 39.71 | 30.08 |
| P/B (x) | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 |
| FCF Yield (%) | (5.0) | (1.8) | 4.5 | 3.1 | 5.2 |
| Dividend Yield (%) | 8.9 | ||||
| EV/EBITDA (x) | 17.71 | 17.92 | 11.73 | 9.09 | 7.26 |
| EV/EBIT (x) | 68.42 | 71.87 | 27.37 | 16.95 | 12.08 |
| Income statement (MYRm) | Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F |
|---|---|---|---|---|---|
| Total turnover | 1,838 | 2,586 | 2,479 | 2,693 | 2,812 |
| Gross profit | 156 | 244 | 299 | 382 | 451 |
| EBITDA | 178 | 201 | 290 | 361 | 424 |
| Depreciation and amortisation | (132) | (151) | (166) | (167) | (169) |
| Operating profit | 46 | 50 | 124 | 194 | 255 |
| Net interest | (8) | (2) | (2) | (2) | (2) |
| Pre-tax profit | 38 | 48 | 122 | 192 | 253 |
| Taxation | (19) | 26 | (28) | (44) | (58) |
| Reported net profit | 13 | 74 | 73 | 114 | 150 |
| Recurring net profit | 27 | 31 | 73 | 114 | 150 |
| Cash flow (MYRm) | Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F |
|---|---|---|---|---|---|
| Change in working capital | (149) | (49) | 73 | (43) | (16) |
| Cash flow from operations | (58) | 114 | 324 | 260 | 334 |
| Capex | (167) | (195) | (120) | (120) | (100) |
| Cash flow from investing activities | (133) | (140) | (109) | (106) | (85) |
| Cash flow from financing activities | (111) | (466) | (2) | (2) | (2) |
| Cash at beginning of period | 1,724 | 1,427 | 923 | 1,136 | 1,289 |
| Net change in cash | (303) | (492) | 213 | 152 | 248 |
| Ending balance cash | 1,427 | 923 | 1,136 | 1,289 | 1,537 |
| Balance sheet (MYRm) | Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F |
|---|---|---|---|---|---|
| Total cash and equivalents | 1,427 | 923 | 1,136 | 1,289 | 1,537 |
| Tangible fixed assets | 1,901 | 2,573 | 2,435 | 2,295 | 2,153 |
| Total assets | 5,258 | 4,743 | 4,851 | 4,995 | 5,186 |
| Short-term debt | 62 | 4 | 4 | 4 | 4 |
| Total long-term debt | 7 | 0 | 0 | 0 | 0 |
| Total liabilities | 613 | 424 | 437 | 434 | 430 |
| Total equity | 4,644 | 4,319 | 4,413 | 4,561 | 4,756 |
| Total liabilities & equity | 5,258 | 4,743 | 4,851 | 4,995 | 5,186 |
| Key metrics | Mar-24 | Mar-25 | Mar-26F | Mar-27F | Mar-28F |
|---|---|---|---|---|---|
| Revenue growth (%) | (23.7) | 40.7 | (4.1) | 8.6 | 4.4 |
| Recurrent EPS growth (%) | (77.1) | 14.0 | 136.4 | 56.7 | 32.0 |
| Gross margin (%) | 8.5 | 9.4 | 12.1 | 14.2 | 16.0 |
| Operating EBITDA margin (%) | 9.7 | 7.8 | 11.7 | 13.4 | 15.1 |
| Net profit margin (%) | 0.7 | 2.9 | 2.9 | 4.2 | 5.3 |
| Dividend payout ratio (%) | 0.0 | 540.6 | 0.0 | 0.0 | 0.0 |
| Capex/sales (%) | 9.1 | 7.5 | 4.8 | 4.5 | 3.6 |
| Interest cover (x) | 6.03 | 24.23 | 66.55 | 103.70 | 136.56 |
Analysis and Results
Figure 1: 1QFY26 results snapshot
| FYE Mar (MYRm) | 1QFY25 | 4QFY25 | 1QFY26 | QoQ (%) | YoY (%) | Comments |
|---|---|---|---|---|---|---|
| Revenue | 583.8 | 611.5 | 553.1 | (9.6) | (5.3) | 1QFY26 revenue decline 10% QoQ as a results a softer volume (-3% QoQ) and weaker ASP (-4% QoQ) |
| EBITDA | 76.3 | 58.6 | 54.9 | (6.3) | (28.0) | |
| EBITDA Margin (%) | 13.1 | 9.6 | 9.9 | |||
| Depreciation | 34.2 | 40.8 | 40.5 | (0.8) | 18.6 | |
| EBIT | 42.2 | 17.8 | 14.4 | (19.0) | (65.8) | |
| EBIT Margin (%) | 7.2 | 2.9 | 2.6 | |||
| Interest expense | (1.0) | (0.1) | (0.1) | (43.0) | (91.8) | |
| PBT | 41.1 | 17.6 | 14.3 | (18.8) | (65.2) | |
| Pretax Margin (%) | 7.0 | 2.9 | 2.6 | |||
| Tax | (9.2) | (3.0) | (2.0) | (34.4) | (78.4) | |
| Effective tax rate (%) | (22.4) | (17.2) | (13.9) | |||
| Minority Interest | 0.0 | (0.1) | 0.3 | n.m. | n.m. | |
| Net Profit | 31.9 | 14.5 | 12.6 | (12.9) | (60.5) | 1QFY26 earnings accounted for 7%/6% of ours and consensus estimate, below expectations. |
| Net Margin (%) | 5.5 | 2.4 | 2.3 | |||
| Core NP | 42.7 | (5.4) | 8.3 | (253.4) | (80.6) | |
| Core NP Margin (%) | 7.3 | -0.9 | 1.5 |
Figure 2: Key assumptions
| Key assumptions | FY26F | FY27F | FY28F | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Before | After | Variance | Before | After | Variance | Before | After | Variance | |
| Blended (ASP, USD per 1,000) | 22.5 | 22.2 | -1.3% | 22.7 | 22.4 | -1.3% | 22.8 | 22.5 | -1.3% |
| Total production (per m pieces) | 27,750.0 | 26,250.0 | -5.4% | 30,200.0 | 28,600.0 | -5.3% | 31,400.0 | 29,800.0 | -5.1% |
| Utilisation | 74.0% | 70.0% | (4.0 ppt) | 75.5% | 71.5% | (4.0 ppt) | 78.5% | 74.5% | (4.0 ppt) |
| USDMYR | 4.2500 | 4.2500 | 0.0% | 4.2000 | 4.2000 | 0.0% | 4.2000 | 4.2000 | 0.0% |
Figure 3: DCF valuation
| FYE 31 March (MYRm) | FY26F | FY27F | FY28F | FY29F | FY30F | FY31F | FY32F | FY33F | FY34F | FY35F | FY36F | Terminal |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| NOPAT | 94 | 147 | 194 | 260 | 306 | 355 | 397 | 468 | 508 | 538 | 570 | |
| + D&A | 166 | 167 | 169 | 171 | 172 | 174 | 176 | 178 | 180 | 182 | 183 | |
| – Change in NWC | 73 | (43) | (16) | (39) | (32) | (33) | (20) | (19) | (13) | (14) | (14) | |
| – CAPEX | (120) | (120) | (100) | (100) | (100) | (100) | (100) | (100) | (100) | (100) | (100) | |
| Free cash flow to firm (FCFF) | 214 | 152 | 247 | 292 | 347 | 396 | 453 | 527 | 574 | 606 | 640 | 5,511 |
| Discount factor | 0.81 | 0.72 | 0.63 | 0.56 | 0.49 | 0.44 | 0.39 | 0.34 | 0.30 | 0.26 | 0.23 | 0.23 |
| PV of FCFF | 174 | 109 | 157 | 163 | 171 | 173 | 174 | 179 | 172 | 161 | 150 | 1,289 |
| Risk-free | 4% | |||||||||||
| WACC | 13% | |||||||||||
| Terminal growth | 2% | |||||||||||
| Enterprise Value (MYRm) | 3,071 | |||||||||||
| – Minority | (0) | |||||||||||
| Cash | 923 | |||||||||||
| – Debt | (4) | |||||||||||
| Equity Value (MYRm) | 3,990 | |||||||||||
| No of shares (m) | 3,422 | |||||||||||
| Intrinsic value (MYR) | 1.16 | |||||||||||
| ESG discount/premium | (0.02) | |||||||||||
| Target Price (MYR) | 1.14 | |||||||||||
Recommendation History
| Date | Recommendation | Target Price | Price |
|---|---|---|---|
| 2025-07-16 | Sell | 1.3 | 1.5 |
| 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 |
