KUALA LUMPUR (May 10): Analysts maintained their recommendations and target prices (TPs) for Hartalega Holdings Bhd, after its disappointing results for the financial year ended March 31, 2023 (FY2023) came in above or within their expectations.
In a note on Wednesday (May 10), MIDF Research said Hartalega’s core profit after tax and non-controlling interest of RM177.8 million outperformed the house's full-year estimate, accounting for 172% of the figure, and 298% of the consensus full-year forecast.
“The upward trajectory was mostly due to higher-than-expected sales volume, on the back of some buying activities that increased the utilisation rate,” it said, adding that this resulted in lower-than-expected production cost per unit.
It noted that the fall in core earnings from RM3.21 billion for FY2022 was due to lower revenue, lower plant utilisation, as well as greater operating cost, which eroded its profit margin.
MIDF Research downgraded Hartalega to “trading sell”, with an unchanged TP of RM1.75, based on its two-year historical -1 standard deviation (SD) price-to-book value of 1.2 times multiplied by an unchanged forecast FY2024 book value per share (BVPS) of 145.5 sen.
“Given the recent share price rally, we are downgrading our recommendation to 'trading sell', as the total return has fallen below -10%. We maintain our cautious outlook on the company, due to the anticipated one- to two-year timeline for the normalisation of supply-demand dynamics in the industry,” it added.
Meanwhile, HLIB Research analyst Sophie Chua Siu Li said the results (core profit after tax and minority interests) were within her expectations at 100%, but above the market estimate at 200%.
However, recognising Hartalega’s RM346.9 million impairment from the decommissioning of its Bestari Jaya production facility, Chua cut her FY2024 earnings forecast for Hartalega to a core loss of RM128.6 million (from RM74.3 million previously), followed by an estimated loss of RM123.8 million for FY2025 (from RM124.2 million).
She explained that this took into account anticipated provisions for retrenchment and contract obligations of around RM70 million. Chua reiterated her “sell” call, with a lower TP of RM1.18 (from RM1.28 previously), premised on a price-to-book value multiple of 0.87 times — near -1.5 SD of its five-year average — its forecast FY2024 BVPS of RM1.36.
Touching on estimates of Hartalega’s earnings, including the one-off impairment, Kenanga Research’s Raymond Choo Ping Khoon said the full-year net loss of RM218 million came in narrower than the research house’s net loss forecast of RM330 million, but a far cry from market expectations of a net profit of RM59 million.
“The variance against our forecast came largely from better-than-expected sales volume,” he said.
Choo reiterated his “underperform” call on Hartalega and maintained his FY2024 earnings forecast, saying that Hartalega's prospects remain weak in view of subdued average selling prices and massive capacity leading to suppressed industry utilisation rates.
“We retain our TP of RM1.30, based on an unchanged 0.9 times forecast FY2024 BVPS, at a 50% discount to the sector’s average of 1.7 times charted during the previous downturns in 2008-2011 and 2014-2015, as we believe the current downturn could be one of the deepest ever,” he said.
At the time of writing on Wednesday, shares in Hartalega were up four sen or 1.77% at RM2.30, giving the group a market capitalisation of RM7.95 billion.