Stock Name: HARTA
Company Name: HARTALEGA HOLDINGS BHD
Research House: OSK
Hartalega Holdings Bhd
(May 12, RM7.89)
Maintain buy at RM7.85 with target price of RM9.89: Hartalega's FY10 results were slightly above consensus and our expectations, making up 106% and 107% of consensus and our forecasts, respectively.
As we mentioned in our results preview, the consistently good results quarter after quarter were mainly contributed by: (1) the company's success in passing on costs; (2) commencement of two new production lines, which ramped up sales volume; (3) continuously strong demand for nitrile gloves due to its narrowing price gap with that for natural rubber latex gloves, and (4) strong emphasis on technology to lower production costs and enhance production efficiency. With these, the 4QFY10 revenue and net profit of RM163.4 million and RM46.4 million rose 10% and 24.8% quarter-on-quarter, respectively. On a year-to-date comparison, FY10 revenue was higher by 29%, attributed to its bigger production capacity and higher selling prices of gloves, while net profit soared 69.4% on increased sales of higher margin gloves, with the nitrile glove mix rising to 80% from 70% a year ago. Also, it recorded a higher utilisation rate of 85% versus 75% in the previous year.
We are not surprised with Hartalega's one-for-two bonus issue proposal as it is in line with moves by its peers such as Top Glove, Supermax and Kossan. Hence, we believe there is possibility of a rerating of the sector given the improved liquidity.
On Tuesday, we upgraded our target price for Hartalega to RM9.89 (previously RM8.92) based on the existing price-earnings ratio (PER) of 14 times as we roll forward to FY12 earnings. We continue to like the company's global market leadership in nitrile gloves. Hartalega also declared a second interim dividend of five sen.
Investment risks include: (1) a shift in demand back to natural rubber gloves when latex prices start to fall, giving rise to a price gap between nitrile and natural rubber gloves; (2) weakening of the US dollar against the ringgit since the bulk of its sales is from exports, and (3) high reliance on two major customers, Medline and Microflex, which together account for more than 50% of total sales. - OSK Research, May 12
This article appeared in The Edge Financial Daily, May 13, 2010.
Company Name: HARTALEGA HOLDINGS BHD
Research House: OSK
Hartalega Holdings Bhd
(May 12, RM7.89)
Maintain buy at RM7.85 with target price of RM9.89: Hartalega's FY10 results were slightly above consensus and our expectations, making up 106% and 107% of consensus and our forecasts, respectively.
As we mentioned in our results preview, the consistently good results quarter after quarter were mainly contributed by: (1) the company's success in passing on costs; (2) commencement of two new production lines, which ramped up sales volume; (3) continuously strong demand for nitrile gloves due to its narrowing price gap with that for natural rubber latex gloves, and (4) strong emphasis on technology to lower production costs and enhance production efficiency. With these, the 4QFY10 revenue and net profit of RM163.4 million and RM46.4 million rose 10% and 24.8% quarter-on-quarter, respectively. On a year-to-date comparison, FY10 revenue was higher by 29%, attributed to its bigger production capacity and higher selling prices of gloves, while net profit soared 69.4% on increased sales of higher margin gloves, with the nitrile glove mix rising to 80% from 70% a year ago. Also, it recorded a higher utilisation rate of 85% versus 75% in the previous year.
We are not surprised with Hartalega's one-for-two bonus issue proposal as it is in line with moves by its peers such as Top Glove, Supermax and Kossan. Hence, we believe there is possibility of a rerating of the sector given the improved liquidity.
On Tuesday, we upgraded our target price for Hartalega to RM9.89 (previously RM8.92) based on the existing price-earnings ratio (PER) of 14 times as we roll forward to FY12 earnings. We continue to like the company's global market leadership in nitrile gloves. Hartalega also declared a second interim dividend of five sen.
Investment risks include: (1) a shift in demand back to natural rubber gloves when latex prices start to fall, giving rise to a price gap between nitrile and natural rubber gloves; (2) weakening of the US dollar against the ringgit since the bulk of its sales is from exports, and (3) high reliance on two major customers, Medline and Microflex, which together account for more than 50% of total sales. - OSK Research, May 12
This article appeared in The Edge Financial Daily, May 13, 2010.
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