KUALA LUMPUR (Dec 17): Hartalega Holdings Bhd’s (KL:HARTA) stock has surged past its consensus target price, as CIMB Securities continues to see further upside, as higher prices and volume are seen driving the glovemaker's earnings ahead.
Shares of the group, which announced a special dividend on Dec 9, have surpassed Bloomberg’s consensus 12-month target price of RM3.65, rising over 42% this year to trade at RM3.83 at the time of writing.
The nitrile glove maker currently has seven ‘buy’ and four ‘hold’ calls, as well as one 'sell' rating among the research houses covering the stock.
CIMB in its latest note raised its target price to RM4.20, on higher average selling prices (ASPs) seen for Hartalega's products, as sales to US-based customers, who typically command higher ASPs, accounted for 56.7% of the company’s revenue in the second quarter of financial year 2025 (2QFY2025).
CIMB also revised its earnings forecast for Hartalega upwards, citing robust US demand amid the imminent US tariff hikes on Chinese glove makers and the "timely" operational ramp-up of its New Generation Complex (NGC) 1.5.
However, the research house flagged Hartalega’s recent special dividend of 10.85 sen per share or RM370.8 million, which goes ex on Dec 20, as a “one-off event".
ASPs are forecast to rise from US$21-US$22 (RM93.49-RM97.94) per 1,000 pieces in 2QFY2025 to US$23-US$24 in 2HFY2025, reflecting stronger client demand and a more favourable product mix, according to Hartalega.
Meanwhile, Hartalega’s NGC 1.5 facility, already operational with 12 out of 24 production lines running, is projected to boost total annual production capacity by 29.7% to 42 billion pieces upon full commissioning in FY2025, the research house said.
Hartalega is also likely to benefit from a surge in glove orders from US-based clients, driven by steep tariffs on Chinese goods, it added. US tariff on Chinese gloves is expected to rise from the current 7.5% to 50% by the end of 2024 and further to 100% on Jan 1, 2025.
Also affecting the company’s financial outlook is the foreign exchange conditions between the ringgit and the US dollar. CIMB’s sensitivity analysis indicates that a 1% strengthening of the ringgit against the US dollar would reduce Hartalega’s earnings per share for FY2025-2027 by 0.3%-0.4%, ceteris paribus.
On dividends, CIMB expects Hartalega to maintain an annual payout ratio of at least 50% of its profit after tax.
At RM3.83, Hartalega trades at a historical dividend yield of 2.98%, based on a payout of 11.41 sen per share after taking into account the special dividends. Its market capitalisation stood of RM13.13 billion.