HARTA: Earnings Exceed Expectations on Cost Savings, Firm Reaffirms ‘BUY’ Rating
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report highlights that the company’s 6MFY26 core earnings of RM27 million significantly surpassed full-year estimates, representing 61% of forecasts. This strong performance was primarily driven by higher-than-expected EBITDA margins, which improved by 4.4 percentage points to 10.6% due to robust cost management. This achievement came despite a 12% year-on-year decline in 6MY26 revenue to RM1.1 billion, influenced by weaker average selling prices (ASP) and softer sales volume.
Operational Efficiency and Challenges
The positive deviation in earnings was largely attributed to rigorous cost optimisation initiatives. These efforts include continuous automation to enhance production efficiency and lower raw material costs. Furthermore, the company has actively prioritised plant-level production optimisation for FY26, resulting in a 16% reduction in headcount and an over 8% decrease in manufacturing costs. These strategic actions underscore the company’s commitment to operational excellence.
However, the company navigated a challenging external environment. The second quarter of FY26 saw average selling prices (ASP) fall by 5% quarter-on-quarter to US$17-18 per thousand pieces. While sales volume increased by 2% quarter-on-quarter, management does not anticipate an ASP uptrend in the near term. This cautious outlook is due to persistent oversupply in the market and increasing capacity from Chinese competitors, which continue to exert pressure on pricing. The company indicated it will continue to closely monitor global supply-demand dynamics.
Future Outlook and Recommendation
Operationally, the company is progressing with the commissioning of remaining lines in Plant 9, with five lines currently in operation and the rest slated to be fully online by March 2026. Management also intends to reactivate Plants 3 and 4 at the appropriate time, contingent on market conditions. Analysts have revised their FY26-28E earnings higher by 16-18%, reflecting updated assumptions for lower operating costs and stable raw material prices, indicating confidence in the company’s long-term efficiency gains.
In light of these developments, TA SECURITIES has maintained a BUY recommendation on the company’s shares. The investment bank has set a target price (TP) of RM0.25, indicating a potential upside of 25.0% from the last traded price of RM0.20.
