Hartalega Holdings Bhd is expected to deliver lower earnings for the financial year ending 31 March 2026 (FY26), as analysts revise their forecasts downward in light of margin compression and foreign exchange (forex) headwinds.
Kenanga Research has reduced its FY26 net profit projection for Hartalega by 25%, driven primarily by a downward revision in earnings margin assumptions. The research house now anticipates a margin of 12%, down from its previous estimate of 14%, citing conservative assumptions that the company will not immediately pass on forex-related cost pressures to customers.
Reflecting this revised outlook, Kenanga has adjusted its target price for the stock from RM4.00 to RM3.20, applying a lower valuation multiple of 2.5 times FY26 book value per share (BVPS), compared with 2.9 times previously. This move accounts for the expected near-term impact of forex movements on the group’s profitability.
In its report to clients, Kenanga also noted that Hartalega’s significant exposure to the United States market—where sales comprise between 50% and 60% of total revenue—could be adversely affected if the currently high tariffs imposed on Chinese glove manufacturers are relaxed. The potential easing of these tariffs could diminish any near-term market share gains Hartalega might otherwise realise in the US.
Despite these challenges, Kenanga believes Hartalega’s share price is currently trading at a level that aligns with its historical price-to-book valuation range before the imposition of US tariffs on Chinese competitors in September 2024. At that time, the stock traded between 1.8 to 2.0 times PBV. On a two-times FY26 BVPS basis, the stock should be valued at approximately RM2.50 per share. At last close, Hartalega’s shares were trading at RM1.55.
The company’s financial performance for FY25 saw a significant rebound, with net profit rising fivefold to RM74.5 million. While this was in line with Kenanga’s expectations, it came in 12% below the consensus forecast.
During a recent briefing, management indicated that it anticipates a modest increase in sales volume for the first quarter of FY26, with growth of between 1% and 8% quarter-on-quarter. This translates to a volume range of six billion to 6.6 billion pieces, as customers reportedly remain cautious amid ongoing uncertainty surrounding tariffs and opt to rely on existing inventories rather than initiate restocking.
As a case in point, shipments surged to 2.3 billion pieces in May before retreating to two billion pieces in June. However, Hartalega expects inventory replenishment to resume in the second half of FY26, with improved order visibility beginning from June this year.
-The Star
