Stock Name: HARTA
Company Name: HARTALEGA HOLDINGS BHD
Research House: HWANGDBS
Hartalega Holdings Bhd
(June 16, RM5.59)
Initiating coverage with buy call at RM5.59 and target price at RM6.90: Hartalega is currently the largest nitrile glove maker in the world with an annual production capacity of 9.6 billion pieces or 6% market share. It is known to be the most efficient glove maker with first class product and engineering innovations, which have allowed it to reap superior operating margins (28% versus 16% industry average) and ROE (36% vs 22% industry average). Future expansion will be supported by its strong balance sheet (RM78 million net cash or 21 sen per share).
Hartalega is building Factory 6 to raise capacity to 13 billion pieces (+42%) over the next two years. Although nitrile costs have risen in the past six months, nitrile gloves remain relatively cheaper than latex gloves due to the persistently high latex costs. This pricing gap will continue to create strong demand for nitrile gloves. Hartalega's FY11 (FYE March) net profit of RM190 million (+33% year-on-year) has closed its gap with Top Glove.
As the industry continues to consolidate, Hartalega is a compelling merger and acquisition (M&A) target given its niche in product and engineering innovation, higher-than-industry operating margins and ROE. And given its most attractive ROE-PE multiple matrix, Hartalega could set a new valuation benchmark.
We initiate coverage with 'buy' call and our RM6.90 target price is pegged to 12 times CY12 EPS or 10% discount to our 13 times target PE for Top Glove. We forecast Hartalega's net profit could surpass RM200 million in FY12F and there is potential for re-rating, premised on Top Glove's 16 times PE when it posted RM245 million net profit in FY ended August 2010. Key catalysts are robust healthcare spending, higher demand for nitrile gloves and M&A interest. ' HwangDBS Vickers Research, June 16
This article appeared in The Edge Financial Daily, June 17, 2011.
Company Name: HARTALEGA HOLDINGS BHD
Research House: HWANGDBS
Hartalega Holdings Bhd
(June 16, RM5.59)
Initiating coverage with buy call at RM5.59 and target price at RM6.90: Hartalega is currently the largest nitrile glove maker in the world with an annual production capacity of 9.6 billion pieces or 6% market share. It is known to be the most efficient glove maker with first class product and engineering innovations, which have allowed it to reap superior operating margins (28% versus 16% industry average) and ROE (36% vs 22% industry average). Future expansion will be supported by its strong balance sheet (RM78 million net cash or 21 sen per share).
Hartalega is building Factory 6 to raise capacity to 13 billion pieces (+42%) over the next two years. Although nitrile costs have risen in the past six months, nitrile gloves remain relatively cheaper than latex gloves due to the persistently high latex costs. This pricing gap will continue to create strong demand for nitrile gloves. Hartalega's FY11 (FYE March) net profit of RM190 million (+33% year-on-year) has closed its gap with Top Glove.
As the industry continues to consolidate, Hartalega is a compelling merger and acquisition (M&A) target given its niche in product and engineering innovation, higher-than-industry operating margins and ROE. And given its most attractive ROE-PE multiple matrix, Hartalega could set a new valuation benchmark.
We initiate coverage with 'buy' call and our RM6.90 target price is pegged to 12 times CY12 EPS or 10% discount to our 13 times target PE for Top Glove. We forecast Hartalega's net profit could surpass RM200 million in FY12F and there is potential for re-rating, premised on Top Glove's 16 times PE when it posted RM245 million net profit in FY ended August 2010. Key catalysts are robust healthcare spending, higher demand for nitrile gloves and M&A interest. ' HwangDBS Vickers Research, June 16
This article appeared in The Edge Financial Daily, June 17, 2011.
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