Hartalega could face short-term setbacks, says Kenanga Research

by **Cals** Tue 22 Apr 2014, 19:46

Business & Markets 2014

Written by theedgemalaysia.com

Tuesday, 22 April 2014 08:49

KUALA LUMPUR (April 22): Kenanga Research has maintained its Outperform rating on Hartalega Holdings Bhd at RM6.40 with a lower target price of RM7.48 (from RM8.21) and said the glove maker may face some minor short-term setbacks.
In a note Tuesday following a company visit, the research house said key takeaways from the company visit included: (i) 4Q13 results expected to come in below house and consensus expectations, (ii) new gloves capacity expansion plans for FY15 and FY16 were on track; and (iii) contrary to market expectations of an impending oversupply of rubber gloves, Hartalega was recording solid demand for nitrile gloves over the last two months.
“We understand that the Next Generation Integrated Glove Manufacturing Complex (NGC) is on track to commission commercial production gradually from Oct 14 onwards with a planned commissioning of two lines per month.
“We are cutting our FY14E and FY15E earnings forecasts by 10-12% taking into account slight margin erosions,” it said.
Correspondingly, the research house said its target price was reduced by 10% from RM8.21 to RM7.48 based on 20x FD CY15 revised EPS.
“Still, we like Hartalega for its: (i) highly automated production model, (ii) solid improvement in its production capacity and reduction in costs leading to better margins compared to its peers, (iii) innovation in producing superior quality nitrile gloves, and (iv) positioning in a booming nitrile segment with a dominant market position.
“Reiterate our Outperform rating,” it said.