PETALING JAYA: The one-off prosperity tax adjustment will impact Hartalega Holdings Bhd’s earnings in the fourth quarter (Q4) of financial year 2022 (FY22), as margins narrow led by inflationary pressures and a lower average selling price (ASP).

       However, the loss in earnings is expected to be mitigated by the stabilisation of nitrile rubber gloves’ ASP in the coming months.

       Kenanga Research said with glove usage estimated to grow on the back of increased hygiene awareness, Hartalega plans to focus on strategic long-term expansion plans to cater to the demand.

       Hong Leong Investment Bank (HLIB) Research expects the ASP for Q4 of FY22 to be at about the US$28 (RM117) level.

       It said for Q4 of FY22, margins should continue to narrow with inflationary pressures such as higher energy and labour costs and this could potentially dip below that of pre-Covid levels.

       CGS-CIMB said Hartalega expects a gradual uptick in orders from Q4 of FY22 onwards, thanks to increasing demand from customers in developed markets.

       TA Research said Hartalega had commissioned eight out of nine lines in Plant 7 (2.6 billion gloves), and the last line is expected to commence operations soon.

       The group released its Q3 of FY22 financial results this week. Net profit declined 71.4% year-on-year (y-o-y) to RM259mil.

       Its nine-month net profit rose 94.4% y-o-y to RM3.4bil and the results were below analysts’ consensus estimate.

       CGS-CIMB expects Hartalega to record losses in Q4 of FY22 due to lower ASPs and the RM375mil impact from the prosperity tax.

       It has downgraded its call to a “hold’’ and lowered its FY22 to FY24 earnings per share to account for lower ASPs and sales volume. Its target price (TP) falls to RM5.80 a share.

       It still likes Hartalega for its leading manufacturing technology in the nitrile space among peers, strong balance sheet and net cash of RM2.8bil, higher margins versus its peers (past five-year average).

       Kenanga Research has downgraded its “buy“ call to “neutral’’ and revised its TP to RM5.88 a share. It cited key risks as a faster decline in ASPs than expected, and adverse foreign-exchange movements.

       HLIB Research has maintained its “hold’’ call and lowered its TP to RM5.05 a share, while TA Research maintained its “buy’’ call but reduced its TP to RM6.02.