KUALA LUMPUR: The decline in Hartalega Holdings Bhd's earnings could be capped in subsequent quarters given that average selling prices (ASP) have returned to more reasonable levels, says Kenanga research.

       The research firm has a target price of RM5.60 on the glove maker, down from RM7, following the recent FY22 earnings announcement.

       "We like Hartalega due to its solid management and margins of which are head and shoulders above its peers.

       "Since ASPs are no longer lofty, expectations of disappointments in subsequent quarters are expected to be capped," it said, while reiterating "outperform" on the stock.

       This is notwithstanding the challenges highlighted by management moving forward, wich include a continuation of the shipping delay in future quarters, whereby order back log will continue.

       Furthermore, Kenanga said a slightly higher ASP from June delivery would be insufficient to pass on expectations of higher operating cost, which includes a higher minimum wage.

       In FY22, Hartalega's FY22 profit after tax and minority interests (Patami) of RM3.23bil was within Kenanga's and consensus full-year estimates at 94% and 98% respectively.

       Excluding the one-off Prosperity Tax, the research firm said normalised 4QFY22 net profit was expected to come in at RM152mil, bringing FY22 net profit to RM3.58mil.

       On the back of Hartalega's FY22 results, Kenanga said it downgraded its FY23 forecast earnings by 16% after taking into account a reduced ASP of US$25 per 1,000 pieces from US$26, and a decline in earnings before interest, tax, depreciation and amortisation (Ebitda) to 20% from 22%.