PETALING JAYA: The re-emergence of the “US-premium” in the pricing for rubber gloves may allow Hartalega Holdings Bhd to fully pass on the recent foreign-exchange impacts faced by the group and allow for margin improvement.

Hartalega’s revenue exposure to the United States, which was about 40% to 50%, is expected to rise to 60% to 70% from January 2025 onwards, said Hong Leong Investment Bank Research (HLIB Research).

The glove maker is expected to deliver stronger sequential earnings from the third quarter its financial year 2025 (3Q25) or even 4Q24 onwards.

HLIB Research maintained its earnings forecasts for Hartalega’s financial years 2025 to 2027, as it believes the upcoming weaker 2Q25 performance will be offset by a stronger 4Q25.

This would be due to the result of passing on the recent US dollar weakness to its US customers (such as higher average selling price), together with margin expansion, especially from December 2024 onwards.

The research house maintained a “buy’’ call on Hartalega with an unchanged target price of RM3.62 a share.

HLIB Research also said Hartalega provided guidance that the latest pricing of generic medical nitrile rubber gloves would remain competitive in non-US markets at US$18 to US$19 per 1,000 pieces since May 2024 due to ongoing Chinese competition.

Chinese manufacturers are currently selling at US$16 to US$17 per 1,000 pieces.

Sales volumes would improve sequentially from 1.9 billion to two billion pieces per month in 2Q24 to 2.1 billion to 2.2 billion pieces per month. It will further increase to 2.3 billion to 2.4 billion pieces per month in 4Q24.

The improvement in 4Q24 would mainly be boosted by the tariff-led trade diversion from US customers.

The research house said Hartalega is able to differentiate itself from its local peers due to its reputable brand name as one of the listed Big-Four in Malaysia, consistent business relationship with US buyers and relatively higher exposure to North America compared with its major listed peers.

HLIB Research added the glove maker believes the premium would be more significant for its December 2024 orders, ahead of the US tariff increase from the existing 7.5% to 50% effective January 2025, which makes it less economically feasible for Chinese players to produce for the US customers.

Hartalega had been quoting its December 2024 orders at US$22 to US$23 per 1,000 pieces, versus US$24 to US$26 per 1,000 pieces in the pre-pandemic era, for its US customers, subject to acceptance, the research house said.

HLIB Research said the price point implies a premium of US$3 to US$4 per 1,000 pieces compared with its customers outside the United States, in order to fully pass on recent forex impacts faced and potentially expand its margins.