Hot Stock Hartalega falls 2.3% on dismal 4Q profit

by **Cals** Wed 07 May 2014, 22:55

Hot Stock Hartalega falls 2.3% on dismal 4Q profit

Business & Markets 2014

Written by Jeffrey Tan of theedgemalaysia.com

Wednesday, 07 May 2014 12:29

KUALA LUMPUR (May 7): Hartalega Holdings Bhd fell as much as 2.3% after the glove maker announced yesterday its net profit dropped for the fourth quarter ended Mar 31, 2014.

Yesterday, Hartalega reported 4Q net profit dropped 21.1% year-on-year to RM49.2 million from RM62.3 million.

At 12.09 am today, Hartalega lost 15 sen or 2.5% to RM5.87. The top loser saw trades of 658,100 shares.

In light of the disappointing 4Q result, analysts have largely downgraded target price (TP) for Hartalega, but kept a ‘neutral’ or ‘hold’ rating for the stock.

Alliance Research in a note today said it slashed TP to RM5.45. CIMB Investment Bank Research also lowered its TP to RM6.46 from RM7.30.

With a 'hold' rating, the Alliance research team said: “Hartalega’s net profit missed our estimates which hit only 92% of our full-year forecast.”

“Profitability has fallen for two consecutive quarters, leading us to cut FY15 and FY16 profit by 20% each,” it said.

CIMB IB’s analyst Eing Kar Mei, who recommends a 'hold' rating, said she cut her FY15 and FY16 net profit forecast by 9%-12% to factor in the margin compression due to price competition and higher operating costs.

“The price competition was more apparent in 4Q due to the higher nitrile capacity supply in the industry,” she said.

“Apart from that, the lower EBITDA margin was also caused by the higher operating cost due to inflation, higher staff and plant maintenance costs, and higher foreign exchange loss of RM1.5 million.”

Eing foresees FY15 will be a more challenging year given the likelihood of further cuts in subsidies, as well as more nitrile capacity supply that will continue to weigh on selling prices.

Despite the largely pessimistic comments from analysts, Kenanga said Hartalega will start improving margins once its next-generation glove manufacturing complex 'plant 7' begins commercial production due to economies of scale.

Kenanga said Hartalega’s net profit came within expectation, at 98% of its full-year forecasts.

”We maintain 'outperform' for the stock with an unchanged TP of RM7.48,” it added.