Possible turnaround for Hartalega

PETALING JAYA: Glove maker Hartalega Holdings Bhd is positioning for a potential turnaround in the coming months, buoyed by early signs of demand recovery and an anticipated rebound in average selling prices.

The group remains cautiously optimistic about its near-term prospects.

The company’s management has flagged “early signs of recovery in sales orders from US customers for May” and is anticipating “a more meaningful replenishment” in June as inventories are drawn down.

Hong Leong Investment Bank Research (HLIB Research), following a recent meeting with the company, maintained its earnings forecasts for Hartalega’s financial years ending March 31, 2025 (FY25) to FY27.

The research house reiterated its “buy” call with an unchanged target price of RM2.66.

It views Hartalega’s risk-reward profile as compelling, especially in light of the group’s positioning amid tariff dynamics and ongoing sector consolidation.

On the volume front, HLIB Research noted that Hartalega expects a 15% to 20% quarter-on-quarter decline in sales for the fourth quarter of FY25 an outlook consistent with prior guidance. However, sentiment is improving, the research house said.

“We see scope for a renewed wave of accelerated purchases during the 90-day tariff pause announced on April 10, a development that could offer a timely uplift in volumes and prices,” the research house said.

While temporary, the tariff reprieve is seen as a positive short-term catalyst, HLIB Research added. Price trends for gloves have softened since their peak last December due to weaker volumes.

Although the cost of gloves is relatively low compared with the overall cost of other medical goods and treatment, they can be classified as recession-proof since their use is so important.

Nevertheless, Hartalega is preparing to implement a price hike this July, if a sustained recovery takes place in June.

“The group is looking to raise prices beginning July, contingent upon a potential recovery in US demand on June 25,” the research house said.

In response to cost-sharing requests from US buyers, Hartalega has declined proposals to absorb the recently imposed 10% tariff.

The company cited its ongoing financial recovery, HLIB Research said.

“Management has declined such a proposal, citing its still-recovering financial position,” the research house pointed out.

It noted the stance aligns with that of other local glove makers, who are prioritising financial resilience over short-term volume gains.

Structurally, HLIB Research remains upbeat on the glove sector’s medium-term outlook.

“We remain positive on the sector’s recovery trajectory, with demand-supply equilibrium expected to emerge by next year,” the research house said.

It added that Malaysia’s status as the glove-exporting nation facing the lowest US tariffs further strengthens the country’s position in trade negotiations.

This offers potential long-term tailwinds for domestic manufacturers.

Malaysia’s glove pricing would remain more competitive than China’s in the US market. With Hartalega’s share price having fallen 46% year-to-date, HLIB Research said it believes the current valuations offer an attractive entry point for investors.