KUALA LUMPUR: Cukai Makmur is expected to cost Hartalega Holdings Bhd an additional RM639.32 million in its financial year ending March 31, 2022 (FY22) earnings, MIDF Research said today.
However, the potential loss in earnings is forecasted to be slightly mitigated by the stabilisation of nitrile rubber glove average selling price (ASP) in the coming months.
MIDF Research said due to multiple reasons, ASP of nitrile rubber gloves are now seeing price stabilisation.
"China rubber glove players as a whole, the largest competitor to the global rubber industry players, are now experiencing a power supply crunch.
"With the help of the Chinese government, it has reduced the energy cost but unlikely to the levels of Hartalega's energy cost.
"Secondly, with the gas price revision in September 2021, the management is looking to pass down the cost to customers and are expecting the rest of the industry to do the same.
"We also opine that rubber glove industry players are now taking ESG issues more seriously and will spend more on social compliance costs which likely will be passed onto customers," it said.
MIDF Research said compared to a few of its competitors, it was concerned if Hartalega would be hit with the the US Customs and Border Protection's (CBP) withhold release order.
"However, the management shared that Hartalega has engaged with the CBP since October 2020. The risk of exports ban to be imposed onto its goods seems low," it added.
MIDF Research has revised Hartalega's earnings estimates for FY23 to reflect the higher social compliance costs and conversion cost of raw materials as highlighted by the management.
The firm has maintained its "Buy" call on Hartalega with a lower target price of RM8.03 from RM8.40 previously.
"Hartalega remains our top pick for the rubber glove sector for their innovative approach towards automated production and focus on mitigating ESG issues which are grave concerns among investors," it said.