Broker: UOB Kay Hian
Date of Report: 6 August 2025

Hartalega Holdings Faces Headwinds but Eyes Recovery: In-Depth Analysis of 1QFY26 Performance and Strategic Outlook

Overview: Hartalega Holdings Bhd – World’s Leading Nitrile Glove Manufacturer

Hartalega Holdings Bhd, a global leader in nitrile glove manufacturing, is navigating a challenging market landscape marked by weakening demand, competitive pressures, and regulatory hurdles. Despite these headwinds, the company is focused on internal cost optimization and is positioning itself for a potential rebound as market dynamics shift.

Stock Snapshot and Shareholder Structure

• Share Price: RM1.32
• Target Price: RM1.40 (Lowered from RM1.55)
• Market Capitalization: RM4,505.5 million (USD 1,065.5 million)
• Shares Issued: 3,413.3 million
• 52-Week Range: RM4.11 – RM1.31
• Major Shareholders:
  • Hartalega Industries Sdn Bhd: 34.4%
  • Budi Tenggara Sdn Bhd: 8.6%
  • KWAP: 6.4%
• FY26 NAV/Share: RM1.29
• FY26 Net Cash/Share: RM0.32

1QFY26 Results: A Mixed Bag Amid Industry Turbulence

Hartalega reported a core net profit of RM8.2 million for 1QFY26, marking a turnaround from a RM5.4 million core loss in 4QFY25. However, this result was below both company and market expectations, accounting for only 7% and 6% of full-year estimates, respectively.
Key financial highlights for 1QFY26:

Key Factors Impacting Performance

• Sales Volume Decline: 1QFY26 saw a 3% qoq drop in sales volume, largely due to US customers frontloading inventories ahead of tariff changes on China-made gloves.
• ASP Pressure: Average selling price (ASP) in USD terms dropped 4% qoq to US\$21.70 per 1,000 pieces. In ringgit terms, ASP fell 7% qoq.
• Utilisation Rate: Dropped to 67% (from 69% in 4QFY25), reflecting lower orders and soft US demand.
• Currency Impact: The US dollar weakened 3.1% against the ringgit, further squeezing margins.

Financial Performance and Projections

Operational Metrics and Strategic Initiatives

• Glove Production: 5.91 billion pieces in 1QFY26, down 3.1% qoq.
• Utilisation Rate: 67% (-2.9% qoq, -13.5% yoy).
• Blended ASP (USD): US\$21.70 (-3.7% qoq, +4.2% yoy).
• Cost per 1,000 Gloves: RM92.4 (-6.5% qoq).

Cost Rationalisation:
Headcount reduced from 8,000 to 6,300, with a further reduction to 5,300 planned.
RM300 million allocated for production automation to enhance efficiency and margins.
Capacity Management:
Current annual capacity maintained at 35-37 billion pieces, with plans to ramp up to 43 billion by commissioning new lines at the NGC1.5 plant.

Market Dynamics: Competitive Pressures and Regulatory Risks

• China Competition: Intensifying price competition as China glovemakers pivot away from the US (due to high tariffs: 80% in 2025, 130% in 2026) and target Europe and Asia, pressuring ASPs and margins in non-US markets.
• US Market Shift: Malaysia’s market share of US medical glove imports is projected to rise from 25-30% in 2024 to 65-70% as China exits the US market, potentially boosting Hartalega’s sales in the US.
• Tax Assessment: Hartalega received an Inland Revenue Board (IRB) additional assessment totaling RM101 million for the years 2017-2022. The company is seeking legal advice and may appeal. Its net cash position of RM989 million is seen as sufficient to cover this if required.

Earnings Revisions and Valuation

FY26 and FY27 earnings have been revised down by 12% and 9%, respectively, due to reduced sales volume and utilisation rate assumptions.
Valuation: HOLD maintained, with a lower target price of RM1.40 (from RM1.55), based on a 28.0x 2026F PE, matching the five-year average.

Environmental, Social, and Governance (ESG) Highlights

• Environmental: Hartalega targets a 22% reduction in greenhouse gas emission intensity by 2024.
• Social: Adherence to local and international labour standards, including the ILO’s 11 indicators of Forced Labour.
• Governance: Five of eight board members are independent (63%).

Assumptions and Growth Projections

Profit & Loss, Balance Sheet, and Key Metrics

Conclusion: Navigating Uncertainty with Optimism

Hartalega’s 1QFY26 performance reflects ongoing industry challenges but demonstrates resilience through proactive cost management and strategic automation investments. While global competition and regulatory risks remain, especially from China and new tax assessments, the company is well-positioned to benefit from a recovering US market and rising global glove demand.
Investors are advised to maintain a cautious stance (HOLD recommendation) as the company focuses on restoring margins and capturing new growth opportunities in the evolving healthcare landscape.