By Ying Xian Wong


Shares of Malaysian glove maker Hartalega Holdings Bhd. are trading lower after analysts cut earnings forecasts and target prices in the wake of a steep drop in quarterly earnings.

Shares fell as much as 6.1% to MYR2.63 early Wednesday, bringing year-to-date losses to 54%.

The drop comes after Hartalega on Tuesday reported a 96% on-year drop in net profit in the quarter ended June, with revenue slumping 78% amid weaker global demand for protective wear along with higher labor and energy costs.

CGS-CIMB analyst Walter Aw said that due to the current weak operating environment in the glove sector, he expects Hartalega to post sequentially lower earnings in the next three quarters.

"Current valuations have yet to account for the weaker-than-expected earnings prospects ahead," he said, noting that the stock recently traded with a price-to-earnings ratio at a more than 63% premium to the overall sector's ratio. The brokerage downgraded Hartalega to a reduce rating from hold, slashing its target price to MYR2.30 from MYR4.70.

"The meteoric demand during the Covid-19 pandemic has fizzled down," said Malacca Securities analyst Kenneth Leong. He also highlighted concerns over volatility in raw material prices, shipping constraints, electricity cost, labor shortages and the threat of competition from local and overseas players.

"Moving forward, we were guided [that] the stiff competition that resulted in the oversupply condition and inventories from previous stockpiling activities have yet to taper," he said. "Thus, we expect this would continue to depress [average selling prices], and we expect prices to remain soft throughout fiscal year 2023."

Malacca cut its target price to MYR2.61 from MYR4.69, while keeping its hold rating.

Maybank Investment Bank analyst Wong Wei Sum described Hartalega's outlook as gloomy, with management turning "more bearish" on average selling prices and putting some plans for expansion on hold.

The bank lowered its earnings forecasts for fiscal years 2023-2025 by 39%, 49% and 16%, respectively, while cutting its target price to MYR1.86 from MYR2.48. It maintained its sell call.


Write to Ying Xian Wong at yingxian.wong@wsj.com


(END) Dow Jones Newswires

08-09-22 2258ET