KUALA LUMPUR (Sept 19): PublicInvest Research has upgraded Hartalega Holdings Bhd to “Neutral” at RM5.27 with a higher target price (TP) of RM5.20 (from RM4) and said the oversupply episode faced by the glove makers previously is now done and dusted and the operating environment is improving.

In a note today, the research house said based on its channel check, the glove makers are experiencing an uptick in demand for their gloves.

“We believe the pickup in sales was partially due to the US-China trade war as some Chinese manufacturers are diverting their orders to other countries, in order to avoid tariffs imposed by the US government.

“However, due to the delay in the commissioning of Plant 6, Hartalega is not able to fully capture and benefit from the demand uptick in FY20F,” it said.

PublicInvest Research revised down its FY20F earnings forecast for Hartalega by 14% after factoring in lower margin due to higher cost per unit.

“For FY21-22F, we are forecasting 10-14% earnings growth, mainly due to higher sales volume as capacity expansion kicks in.

“Considering the improving operating landscape as we move into 2020, we raise our TP to RM5.20 (from RM4.00 previously), rolling over our valuation to CY20F and pegging a higher PE multiple of 35x, which is near +1.0 SD of its 5-year historical mean,” it said.