HwangDBS Vickers Research has raised its target price for Hartalega Holdings Bhd, the largest producer of nitrile gloves
in Malaysia, to RM7.70 from RM6.50 previously, on better growth visibility despite margin pressure.
However, it downgraded its recommendation to "hold" from "buy" due to limited upside for the share price. Hartalega fell eight sen to close at RM7.74 in the morning session today.
The research house said the next re-rating catalyst for the stock would be its new Factory 6, which would lift capacity by four billion pieces to 13 billion pieces per annum.
It said Hartalega's earnings growth in the next financial year is limited and would largely be driven by costs and operating efficiencies as it is now operating close to full capacity.
The first production line at Factory 6, which will have a total of 10 lines, is expected to be commissioned by end-2012. Hartalega is looking to raise the efficiency bar and targets a production of 40,000 pieces of gloves per hour per line compared to 35,000 pieces per hour for Factory 5, and the industry average
of 18,000 to 23,000 pieces.
The research house conservatively kept its earnings per share growth forecast for the company for financial years ending (FYE) March 31, 2012 and 2013 at 6-8 per cent as the full impact of Factory 6 will only be visible from FYE 2014 onwards," it added.
Hartalega will release its results for the third quarter of FYE 2012 on Feb 22. HwangDBS Vickers estimated Hartalega to show a flat net profit quarter-on-quarter (second quarter profit at RM46 million).
It also expected the glove manufacturer to meet its full year earnings estimate of a net profit of RM203 million and revenue of RM910 million for FYE 2012. -- Bernama
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