KUALA LUMPUR: Analysts have revised their earnings forecasts for Hartalega Holdings Bhd, driven by expectations of higher average selling prices (ASP) and improving margins.
However, they remain cautious on the glovemaker's near-term prospects, citing ongoing pressures from currency volatility and supply chain headwinds.
Hong Leong Investment Bank (HLIB) and CIMB Securities both revised upward their earnings assumptions for the financial year ending March 31, 2027 (FY27), following Hartalega's FY26 results.
Hartalega's FY26 net profit rose 38 per cent to RM103 million from RM74.5 million, despite a 17 per cent decline in revenue from RM2.58 billion to RM2.14 billion.
The company's earnings showed a sharp year-on-year recovery in profit but came in below internal estimates due mainly to a higher-than-expected effective tax rate and weaker-than-anticipated revenue assumptions.
HLIB raised its FY27 forecast by 37.2 per cent, citing stronger ASP pass-through and improved absolute earnings, while CIMB Securities increased its FY27 core net profit (CNP) projection by 14 per cent, incorporating higher ASP assumptions and a weaker ringgit outlook.
HLIB left FY28 forecasts unchanged, while CIMB Securities trimmed its FY28 CNP forecast by five per cent, owing to anticipated ASP normalisation, driven by easing input costs as geopolitical uncertainties related to the US-Iran tensions gradually subside.
It expects a sequential improvement in the first quarter of FY27 earnings, underpinned by recent ASP adjustments and a higher revenue base.
However, it noted that production volumes are likely to remain flat as the company is already operating at high utilisation levels.
The firm said Hartalega guided that ASP adjustments will broadly follow industry peers in terms of both magnitude and timing, aimed at fully passing through recent increases in nitrile butadiene rubber (NBR), chemical and other input costs linked to the Iran war to protect margins.
"Hartalega updated that NRB supply chain disruptions have affected raw material availability and shipping timelines.
"However, the group has mitigated these risks through diversified sourcing across Korea, Taiwan, Malaysia, Thailand, India and partially China, securing sufficient raw materials through June 2026," it said.
HLIB added that volumes are expected to remain intact in July, although pricing visibility remains uncertain at this stage.
The firm said that despite Iran's war-related NBR supply constraints, management noted there were no signs of panic buying in the market.
Meanwhile, CIMB Securities said the recent US-Iran ceasefire plan has provided short-term relief to key input costs, with NBR prices falling more than 20 per cent from the early-April peak.
However, it noted that the input prices remain at least 60 per cent above pre-conflict levels, indicating continued supply tightness.
"Hartalega noted that there is currently no raw material shortage, as the company maintains at least two months of raw material storage.
"In addition, diversification of procurement sources should help to mitigate potential supply
Disruptions," it said.
Both HLIB and CIMB maintained "Hold" recommendations on the stock, raising their target prices slightly to RM1.22 and RM1.24, respectively.