Hartalega Holdings Berhad 1QFY2013 - Easy days are over
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Hartalega Holdings Berhad 1QFY2013 - Easy days are over
Result
- Hartalega recorded RM247.7mil of revenue and RM53.4mil of net profit in 1QFY2013. The revenue was 12.9% higher yoy and 3.1% higher qoq whilst net profit eased 2.6% yoy but up 6.8% qoq.
- The result was well within our and consensus estimates. The revenue accounted for 23.5% and 23.8% of our and the street’s forecast respectively. Similarly, net earnings accounted for 23.1% of our expectation and 23.6% of the consensus’.
Comment
- Commendable sales growth - Sales volume increased 11.7% yoy to 2.21bil pieces of gloves from 1.98bil pieces sold in 1QFY2012. As a result, revenue inched up remarkably by 12.9% as highlighted above. While Hartalega’s Plant 6 is set to commence operation as early as 2QFY2013, we expect the capacity boost of up to 13.4% this year to be timely as the tight production utilization rate closes in to 90%, up from 79.1% yoy.
- Easy days are over – Earnings margins fell in the region of 3-4ppts yoy, partly because of the high base effect as the Group did incredibly well last year. As the latex price succumbed to a low of RM5.97/kg as of 7 August 2012, we expect the price gap between latex and nitrile glove to narrow down, thus indicating challenging times ahead for the world largest nitrile glove-maker in coming quarters.
Earnings Outlook/Revision
- We made no changes to our earnings forecast. We also introduce our earnings estimates for FY2015.
Valuation & Recommendation
- Downgrade to HOLD from BUY with unchanged Target Price of RM4.48 as we do not foresee any immediate catalyst for the stock. We downgrade our call to HOLD as the share price has surged 10%, hitting our TP since we issued our sector report in early July. Our TP is pegged at 14x FY2013 PER, which is in line with its +1 standard deviation above 2-year average PE.
- Entry price of RM4.07. We continue to favour Hartalega for its niche position as the most profitable and efficient manufacturer in the industry, as well as its ambitious capacity expansion plan in the Next Generation Integrated Glove Manufacturing Complex (NGC).
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- Hartalega recorded RM247.7mil of revenue and RM53.4mil of net profit in 1QFY2013. The revenue was 12.9% higher yoy and 3.1% higher qoq whilst net profit eased 2.6% yoy but up 6.8% qoq.
- The result was well within our and consensus estimates. The revenue accounted for 23.5% and 23.8% of our and the street’s forecast respectively. Similarly, net earnings accounted for 23.1% of our expectation and 23.6% of the consensus’.
Comment
- Commendable sales growth - Sales volume increased 11.7% yoy to 2.21bil pieces of gloves from 1.98bil pieces sold in 1QFY2012. As a result, revenue inched up remarkably by 12.9% as highlighted above. While Hartalega’s Plant 6 is set to commence operation as early as 2QFY2013, we expect the capacity boost of up to 13.4% this year to be timely as the tight production utilization rate closes in to 90%, up from 79.1% yoy.
- Easy days are over – Earnings margins fell in the region of 3-4ppts yoy, partly because of the high base effect as the Group did incredibly well last year. As the latex price succumbed to a low of RM5.97/kg as of 7 August 2012, we expect the price gap between latex and nitrile glove to narrow down, thus indicating challenging times ahead for the world largest nitrile glove-maker in coming quarters.
Earnings Outlook/Revision
- We made no changes to our earnings forecast. We also introduce our earnings estimates for FY2015.
Valuation & Recommendation
- Downgrade to HOLD from BUY with unchanged Target Price of RM4.48 as we do not foresee any immediate catalyst for the stock. We downgrade our call to HOLD as the share price has surged 10%, hitting our TP since we issued our sector report in early July. Our TP is pegged at 14x FY2013 PER, which is in line with its +1 standard deviation above 2-year average PE.
- Entry price of RM4.07. We continue to favour Hartalega for its niche position as the most profitable and efficient manufacturer in the industry, as well as its ambitious capacity expansion plan in the Next Generation Integrated Glove Manufacturing Complex (NGC).
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