Stock Name: HARTA
Company Name: HARTALEGA HOLDINGS BHD
Research House: CIMB
Hartalega Holdings Bhd
(Aug 11, RM7.84)
Maintain outperform at RM7.90 with target price RM12.73: Hartalega's 1QFY3/11 results were broadly in line with our expectations. Annualised 1Q core net profit came in at 98% of consensus forecast and 90% of our forecast. We consider the company to be on track given the likelihood of stronger quarters ahead as a result of the company's expansion plans and higher demand from growing usage of nitrile gloves. No dividends were announced for the quarter, which was no surprise as the company usually declares dividends from 2Q onwards. We make no changes to our earnings forecasts or our target price of RM12.73 as we continue to value the stock at 14.9 times PER, a 10% discount to Top Glove's target PER of 16.5 times. Hartalega remains an outperform, with the potential re-rating catalyst being its ability to keep its margins high with the help of superior operational efficiency and premium products.
Hartalega's core net profit advanced 57% year-on-year (y-o-y) in 1QFY2011. But on quarter-on-quarter (q-o-q) basis, it declined almost 11% due to a steep rise in latex prices, depreciating US dollar, recognition of share-based payment expenses of RM1 million and the effect of the adoption of FRS 139 amounting to RM2.5 million. Should we exclude the share-based payment expenses and the effect of adoption of FRS 139, the company's bottom line would be RM44.9 million, a decrease of just 3% q-o-q, and when annualised would make up 97% of our FY forecast of RM185.2 million. Natural latex prices went up 3% on average to RM7.26/kg while nitrile latex prices increased about 7% q-o-q. On top of that, the US dollar depreciated almost 4% against the ringgit to RM3.24:US$1 during the quarter. The time lag in passing on higher latex costs and the weakening US dollar has resulted in the earnings before interest and tax (Ebit) margin narrowing 3.2 percentage points q-o-q to 31.7%.
Although the demand boost from the H1N1 outbreak last year has subsided, demand for Hartalega's nitrile gloves remains intact. The recent results released by rubber glove manufacturers have shown margin and earnings contraction due to a rise in raw material costs and the weak US dollar. But we are not worried as this is not the first time glove manufacturers are facing this situation. As in the past, average selling prices can be adjusted for higher costs and a weaker US dollar. ' CIMB Research, Aug 11
This article appeared in The Edge Financial Daily, August 12, 2010.
Company Name: HARTALEGA HOLDINGS BHD
Research House: CIMB
Hartalega Holdings Bhd
(Aug 11, RM7.84)
Maintain outperform at RM7.90 with target price RM12.73: Hartalega's 1QFY3/11 results were broadly in line with our expectations. Annualised 1Q core net profit came in at 98% of consensus forecast and 90% of our forecast. We consider the company to be on track given the likelihood of stronger quarters ahead as a result of the company's expansion plans and higher demand from growing usage of nitrile gloves. No dividends were announced for the quarter, which was no surprise as the company usually declares dividends from 2Q onwards. We make no changes to our earnings forecasts or our target price of RM12.73 as we continue to value the stock at 14.9 times PER, a 10% discount to Top Glove's target PER of 16.5 times. Hartalega remains an outperform, with the potential re-rating catalyst being its ability to keep its margins high with the help of superior operational efficiency and premium products.
Hartalega's core net profit advanced 57% year-on-year (y-o-y) in 1QFY2011. But on quarter-on-quarter (q-o-q) basis, it declined almost 11% due to a steep rise in latex prices, depreciating US dollar, recognition of share-based payment expenses of RM1 million and the effect of the adoption of FRS 139 amounting to RM2.5 million. Should we exclude the share-based payment expenses and the effect of adoption of FRS 139, the company's bottom line would be RM44.9 million, a decrease of just 3% q-o-q, and when annualised would make up 97% of our FY forecast of RM185.2 million. Natural latex prices went up 3% on average to RM7.26/kg while nitrile latex prices increased about 7% q-o-q. On top of that, the US dollar depreciated almost 4% against the ringgit to RM3.24:US$1 during the quarter. The time lag in passing on higher latex costs and the weakening US dollar has resulted in the earnings before interest and tax (Ebit) margin narrowing 3.2 percentage points q-o-q to 31.7%.
Although the demand boost from the H1N1 outbreak last year has subsided, demand for Hartalega's nitrile gloves remains intact. The recent results released by rubber glove manufacturers have shown margin and earnings contraction due to a rise in raw material costs and the weak US dollar. But we are not worried as this is not the first time glove manufacturers are facing this situation. As in the past, average selling prices can be adjusted for higher costs and a weaker US dollar. ' CIMB Research, Aug 11
This article appeared in The Edge Financial Daily, August 12, 2010.
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