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Hartalega Holdings Berhad

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Hartalega Holdings Berhad Empty Hartalega Holdings Berhad

Post by mabs Tue 30 Oct 2012, 15:00

Hartalega Holdings Berhad - Fast And Furious Upgraded

Result preview

- Hartalega sets to announce its 2QFY2013 result on 6th November. We expect the net profit to improve slightly by 5-9% qoq but 21-25% higher yoy to c.RM56-58m. Better qoq performance is mainly attributable to the lower raw material costs whilst whopping jump of yoy performance is due to the RM8.7m unrealized forex losses in relation to the forward hedging recorded in 2QFY12 (Ex. unrealized forex losses, the 2QFY13 net profit is expected to increase 2-6% yoy). Overall, that would bring the 1HFY2013 net profit to RM110-112m, which is within our and consensus’ forecasts.


Comment

Raw material prices running low – Average nitrile price in 2QFY2013 slid 11.6% qoq and 32.3% yoy to USD1,382/tonnes. The slump in nitrile price was probably attributable to the continued lackluster performance of automotive industry in China as tyre manufacturing consumes c.70% of global rubber supply (combination of natural rubber and synthetic rubber). The easing of raw material prices, which is 50-60% of the manufacturing cost, bodes well for Hartalega to protect its market leading margin (>20% net margin).

Fast and furious – Two production lines in the latest Plant 6 began operation earlier this month. With the additional record-breaking speed of producing 42k pieces of gloves per hour in Plant 6, the Group has improved its total average plant’s (Plant 1 to 6) speed to 24k pcs per hour, which is well ahead of the industry average speed of 13-15k pcs per hour. The commissioning of new line is timely as Hartalega is operating at full capacity at the moment to cater for the rising demand for the nitrile gloves.

M&A triggers a re-rating – We believe the recent series of consolidations in the glove industry, such as privatization of Adventa and takeover of Latexx Partners by Semperit, would trigger a re-rating to the sector. Taking a cue from the offer price of RM2.10 for Adventa and RM2.30 for Latexx Partners which translate into a consensus forward PER of 16x and 12x respectively, we reckon that Hartalega’s current valuation is undemanding (trading at only 14.3x PER FY2013F with closing price of RM4.58) considering its niche position as the most profitable and efficient glovemaker in the industry with relatively larger market cap of over RM3b.


Earnings Outlook/Revision

We make no changes to our earnings forecasts as we have factored in the topline contribution from the newly commenced 2 production lines of the Plant 6.


Valuation & Recommendation

Upgrade to BUY from HOLD with a higher Target Price of RM5.12 (Previous: RM4.48) – We turn more optimistic on the stock as the new lines in Plant 6 suggesting the ever improving of Hartalega’s efficiency as well as its dominant position in the industry. Furthermore, the sector consolidation triggers a re-rating of Hartalega’s valuation. Thus, we apply a higher PER of 16x FY2013F to derive our revised TP of RM5.12, which is above its +1 SD above mean PE as we believe the rising demand of nitrile gloves and lower raw material price will continue to spur Hartalega’s future earnings momentum. Our TP translates into an upside of 11.8% from last closing price.

Nitrile decline outpacing latex
– Both of the raw material prices have eased as compared to the start of the year, nitrile has declined by 11.3% whilst latex dropped by 4%. The main rubber consumer, the tyre manufacturers’ demand is still weak as the automotives industry in China continues to struggle. As a result, the poor demand has led to the fall of the prices of both natural and synthetic rubber. Nevertheless, nitrile cost is still priced at a discount to the latex cost in all months except August in CY2012, which indicates better margin for nitrile gloves as the selling prices of both nitrile and latex gloves are close to each other.

(Source: JF Apex Research)
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Hartalega Holdings Berhad Empty Re: Hartalega Holdings Berhad

Post by Cals Tue 30 Oct 2012, 21:20

wa its producing twice as fast as normal competitors

+1 owe u cause rep habis, today went for a repping spree
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