KUALA LUMPUR: Analysts expect Hartalega Holdings Bhd to report weaker quarter-on-quarter earnings in the third quarter of financial year 2027 (Q3 FY27), weighed down by the normalisation of average selling prices (ASPs) and a lag in passing higher raw material costs on to customers.
CIMB Securities Sdn Bhd expects near-term profitability to come under pressure from the normalisation of ASPs and delays in passing on higher raw material costs to customers, following earlier purchases at elevated prices, potentially squeezing margins.
“Over the medium term, Hartalega continues to expect persistent industry oversupply and ongoing pricing pressure from Chinese manufacturers to limit sector upside, broadly in line with our expectations.
“Consequently, the company remains focused on maintaining cost discipline and accelerating automation adoption to mitigate the impact of labour cost inflation,” it said in a note.
Hartalega Holdings Bhd recorded a core net profit of RM28 million in Q2 FY27, bringing its first-half core net profit to RM99 million.
The first-half earnings accounted for 85 per cent of CIMB Securities’ full-year forecast and 60 per cent of consensus estimates, exceeding expectations mainly due to higher-than-anticipated ASPs in Q2.
This was despite the partial impact of a weaker US dollar against the ringgit and a marginal one per cent year-on-year decline in sales volume.
“Following the results release, we raise our FY27 core net profit forecast for Hartalega by nine per cent to reflect stronger-than-expected ASPs.
“However, we trim our FY28 and FY29 core net profit forecasts by two and three per cent, respectively, to account for the impact of higher minimum wages, partially mitigated by efficiency gains arising from the company’s manufacturing line upgrades and automation initiatives,” CIMB Securities.
Meanwhile, Hong Leong Investment Bank Bhd (HLIB) said Hartalega expects sales volume to rise 10 per cent quarter-on-quarter in Q3 FY27, following subdued customer purchases over the previous two quarters.
It said Hartalega had increased the ASPs of generic medical nitrile gloves (3.0 to 3.5 grams per piece) in October and November from September’s low, with further price adjustments in December depending on movements in Brent crude oil prices.
“That said, we expect blended ASP in Q3 FY27 to be weaker QoQ, as Q2 FY26’s realised prices were elevated by delayed shipments carrying the peak May pricing,” it said.
However, HLIB does not expect the latest round of ASP increases to boost profit margins as significantly as in Q1 FY27.
“The key difference is the absence of a temporary tailwind that benefited Hartalega earlier: NBR shortages and cash deposit requirements from NBR suppliers, which temporarily forced smaller and mid-sized players to scale back production and helped alleviate the industry oversupply,” HLIB said.
It said the current ASP increases are likely to support earnings mainly through the lagged impact of inventory costs, rather than a significant improvement in profit margins.
The firm said the roughly 19 per cent decline in Brent crude oil prices since Oct 30 could put pressure on margins in December, as higher-cost nitrile butadiene rubber inventories are used in production amid potentially lower ASPs and rising natural gas costs.
Looking ahead, HLIB expects Hartalega’s earnings to weaken further in Q4 FY27, weighed down by continued moderation in oil prices into the first quarter of calendar year 2027 and a further natural gas tariff increase of about 10 per cent.
CIMB Securities maintained its “Hold” call on Hartalega with an unchanged target price of RM1.12, noting that the weaker near-term earnings outlook has largely been priced in.
Meanwhile, HLIB downgraded the company to “Sell” from “Hold” and lowered its target price to 80 sen from 97 sen, citing persistent structural oversupply and overly optimistic market expectations of margin expansion following the recent Brent crude oil price rally.