KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) cautions that Hartalega Holdings Bhd could be at risk of being booted out of the KLCI in the upcoming semi-annual review should its share price deteriorate further.
The bank-backed research firm noted that the company ranked 35th based on the August 9 closing.
"According to the index ground rules, Bursa Malaysia could potentially remove constituents from the index if it falls below the 35th spot.
"A selldown might be triggered if the constituent change materialises," its analyst Sophie Chua said in a note.
The firm also trimmed its forecast earnings for the financial year 2023 (FY23)-FY24 between the range of 18 per cent and 24 per cent as it lowered its utilisation rate for FY23 and FY24 to 63 per cent and 73 per cent, respectively.
HLIB Research also introduced its FY25 earnings forecast of RM575 million.
It noted that Hartalega's profit after taxes and minority interests (PATAMI) for its first quarter (Q1) of RM114.2 million came in within the firm but missed consensus estimates by 23 per cent and 19 per cent, respectively.
Hartalega reported a 78 per cent slump in its revenue compared to the previous year due to the declining average selling prices (ASPs) and sales volume on the back of normalising glove demand.
"Given the intense market competition, management is expecting the utilisation rate to decline going forward, and current utilisation hovers around 50-60 per cent (in line with industry players).
"ASPs are also expected to persist at a low-US$20 level per thousand gloves in the near term.
"Separately, NGC1.5, which was previously scheduled for commissioning in October 2022, has also been further postponed, and expansion plans are only expected to be revived when the market situation improves.
"Hartalega has also decommissioned some of its older plants to reduce its overall installed capacity and operating cost," it said.
HLIB Research maintained its 'Sell' recommendation for the stock with a lower target price of RM1.92 from RM2.37 previously.