by SHAFIQQUL ALIFF / pic by BLOOMBERG

HARTALEGA Holdings Bhd’s earnings in the third quarter ended Dec 31, 2021 (3Q22), is expected to be weaker due to ongoing lower average selling price (ASP) for gloves.

AmInvestment Bank Bhd (AmInvest) analyst Alan Lim Seong Chun in a recent report said Hartalega’s balance sheet, however, should remain strong with a solid net cash position.

“Despite the surge of Covid-19 cases globally due to the Omicron variant, we understand that the ASP for gloves is still on a downtrend as the market has been flooded with a high supply of gloves in 2021,” Lim said.

He added that the company’s utilisation rate to be in the range of 60%-70% given the high supply that has been entering the market in the past year.

“On the positive side, this also means that there is no shortage of foreign workers in the next six to 12 months for the company,” he added.

The analyst has maintained its ‘Hold’ call on Hartalega with an unchanged fair value of RM6 as he has imputed a 3% premium for an environmental, social, and governance rating of four stars.

“Our valuation is based on a price-to-earnings ratio of 18 times financial year of 2023 (FY23F). We believe that the upside is capped as the ASP downtrend continues.

“Having said that, the downside is also limited as its share price has fallen to around the pre-pandemic level of RM5.92, which was last recorded on Jan 31, 2020,” Lim stated.

AmInvest makes no changes to their FY22F, FY23F and FY24F earnings estimates of RM4.15 billion, RM1.11 billion and RM904 million, respectively.

Lim also stated that Hartalega is currently expanding its Plant 7 although the speed of expansion had slowed down to ensure longterm growth.

“As of end-September 2021, Hartalega has commissioned eight out of 10 lines in Plant 7 which has increased its total capacity to 44 billion pieces per annum,” he stated.