Despite reporting a profit in the third quarter, Hartalega Holdings saw a decline in its share prices as analysts expressed skepticism about the company's future prospects.
Share Prices Slide
On Wednesday morning, shares of the Malaysian glove maker dropped by up to 5.6%, and by the end of the day, they were down 4.9% at 2.53 ringgit. This decline follows a 3.3% drop on Tuesday.
Improved Financial Performance
Hartalega announced on Tuesday afternoon that it achieved a net profit of MYR22.4 million ($4.7 million) for the fiscal third quarter ending on December 31, 2023. This is a significant improvement compared to the net loss of MYR31.9 million recorded during the same period last year.
The company attributed this return to profitability to various factors, including lower costs of raw materials and utilities, increased production efficiency, and cost savings from their operational rationalization efforts.
Decline in Quarterly Revenue
Despite the positive financial outcome, Hartalega experienced a 10% decrease in quarterly revenue. This decline can be attributed to weaker sales volume and lower average selling prices.
Despite the company's turnaround, some analysts remain pessimistic about Hartalega's future. They express concerns about weak selling prices and are cautious due to the recent rally in the stock price.
Hartalega's shares had surged by as much as 32% since hitting a low of MYR2.28 in November. The share price reached its peak at MYR3.02 in early January, driven by the increasing number of Covid-19 cases in Malaysia.
Glove Maker Faces Challenges as Competition Intensifies
The outlook for the glove maker is not very promising in the medium term, according to Public Investment Bank analyst Thye May Ting. Stiff competition from Chinese rivals is expected to keep selling prices for gloves stagnant. In light of this, Public Investment Bank has downgraded the stock to underperform from neutral, as it believes the current share price has surpassed its fair valuation.
A major concern for the glove sector is the oversupply issue, which continues to weigh heavily. Kenanga Investment Bank analyst Raymond Choo Ping Khoon points out that this will result in challenging operating conditions in the coming quarters. Kenanga has also downgraded Hartalega's rating to underperform from market perform, stating that the stock price has risen prematurely.
BIMB Securities analyst Nursuhaiza Hashim suggests that investors should revisit Hartalega when the shares are at a lower price. Hashim believes that the share price is currently outpacing the company's fundamentals and has therefore downgraded the stock to sell from hold.
Despite the challenges, BIMB remains positive on the overall glove industry, as it believes that the worst is over. The brokerage expects a gradual improvement in demand and anticipates signs of improvement to emerge soon.