Smaller than expected quarterly loss
4QFY3/22 net loss of MYR198m (-1.8x QoQ, -1.2x YoY) was better than
expected due to lower-than-expected prosperity tax. Despite the recent
pick-up in orders and stabilising ASP, management remains cautious on
industry outlook due to stiff competition and escalating raw material
costs. We raise our FY23/24 earnings forecasts by 4-5% and TP to
MYR3.14 (+13sen) on an unchanged 19.4x CY23 PER (-1SD of historical
mean). Reiterate SELL.
4QFY22 in the red due to prosperity tax
4QFY3/22 net loss was MYR197.9m (-1.8x QoQ, -1.2x YoY), taking FY3/22
net profit to MYR3.2b (+8.7% YoY), or 106%/100% of our/street’s
forecasts. The earnings gap was due to the lower-than-expected
prosperity tax, we reckon. Excluding tax, FY22 PBT was within our
expectation. Despite the higher sales volume (+33% QoQ; utilisation rate
+17ppt QoQ to 69%), 4QFY22 PBT declined -38% QoQ on lower ASP (-28%
QoQ). Hartalega declared a 3
rd interim div of 3.5sen (YTD:53.5sen) in
4QFY22.
Key takeaways from con-call
(i) Despite the recent pick up in orders and stabilising ASP, management
remains cautious on its ability to fully pass on the higher costs (from
manpower, electricity and raw materials) to its customers due to stiff
competition. Management expects contraction in margin post-Covid due
to rising global supply and production costs, (ii) management will put its
NGC 2.0 expansion (82 lines or 32b pcs gloves) on hold for now in view of
stiff competition and iii) management has set up a team to explore M&A
opportunities. Elsewhere, the upcoming 1QFY3/23 results would likely be
weaker QoQ on lower ASP and higher operating costs.
Earnings adjustments
We raise our FY23/24 earnings forecasts by 4.6%/4.4% to factor in: 1)
actual FY22 results, 2) MYR4.15/USD exchange rate (from MYR4.10) and
3) lower tax rate of 23% for FY23 (from 24%), offset by 4) high nitrile
latex price (+2%). As at end-Mar, Hartalega had MYR2.1b net cash
(MYR0.63/sh).