Hartalega Holdings - Within expectations

By Kenanga Research

9 May 2012

Period    4QFY12/FY12

Actual vs.  Expectations

- Within ours and the consensus expectations. 

- The FY12 net profit made up 95% and 97% of ours and the consensus’ forecasts of RM212.3m and RM206.6m respectively.

Dividends   

- 4Q12: 6 sen net dividend

- FY12 to date: 18 sen net dividend

- Translating to a 2.3% net dividend yield.

Key Result Highlights

- QoQ earnings were flat while EBITDA margins were seen to be lower from 32% to 28%, mainly due to the higher nitrile latex cost as well as competitive sales pricing as more nitrile glove supplies from its competitors kick in. Meanwhile, Hartalega also registered a net gain in foreign exchange of RM782,000, which constitutes a small 0.9% of its profit before tax. 

- YoY earnings increased by 6% but the net profit margins fell from 26% to 22% due to higher feed cost as well as higher taxation, which increased by 7%. 

- We expect lower margins in the coming quarter due to more supplies of nitrile gloves and the timing difference from the depreciation of the USD.

Outlook   Neutral. Higher nitrile glove capacity may erode Hartalega’s lucrative margins. Nonetheless, due to Hartalega’s efficiency and cost structure, we believe Hartalega will still maintain its market leader position in the nitrile segment despite a more competitive sales environment.

Change to Forecasts
We maintain our earnings for FY13.

Rating  

- MARKET PERFORM

- Our Market perform rating is maintained as the current share price implies a 6% upside to the stock as measured against our TP of RM8.32. 

Valuation:We are keeping our target price unchanged at RM8.32. Our valuation is based on 12x FY13 EPS.

Risks:Higher nitrile latex price ahead 

Price: RM7.84

Target Price: RM8.32

[Source]

Hartalega: Maintain HOLD - Awaiting New Capacity For Growth

By Maybank IB Research

9 May 2012

Awaiting New Capacity For Growth

Results in line. FY12 core net profit of MYR208m (+11% YoY) was 

within expectations. We reiterate our HOLD call as near-term earnings 

growth  is capped despite solid demand for nitrile gloves (+20-30% 

YoY), Hartalega is already running at full capacity and the bulk of the 

new capacity from Plant 6 will only kick in in 2QFY3/14. We maintain 

our  FY3/13-14 forecasts and introduce  estimates for  FY3/15. 

Hartalega’s 3-year earnings CAGR of 10% is respectable, coming from 

a high base. TP is also retained at MYR8.50, based on 13x CY13 PER. 

A flattish quarter. Flattish 4QFY3/12 core net profit of MYR49m (-3% 

QoQ) was due to flattish sales volume (+2% QoQ) and stable margins

(+0.1ppt QoQ). The company was able to maintain its margins despite 

higher NBR cost as: (i) Hartalega stocked up more NBR requirements

when it was cheaper in Dec 2011; and (ii) ASP was raised by c.3% in 

Mar 2012. The company also declared a third interim dividend of 6sen/

share (YTD: 18sen/share) and is expected to declare a final dividend in 

mid-Aug 2012 (after the AGM).

NBR price falling. Given the softer global demand outlook, butadiene 

(feedstock for NBR) prices have  fallen sharply, by 26% MoM in Apr 

2012. In May  2012, NBR  prices too have started to come off (-3% 

MoM, -7% YoY). We expect the price of NBR to fall more substantially 

in the coming months as it typically lags butadiene by  two  months. 

Though Hartalega may lower its nitrile glove ASP in order to pass on 

the cost savings to its customers, we think this may not be a full pass 

through  and it also gives the company some room to breathe in the 

midst of the price competition within the nitrile segment.

Earnings step-up in FY3/14. We maintain our FY3/13-14 forecasts, 

which project a moderate 4% growth in FY3/13 earnings and a stronger 

13% growth in FY3/14, as  the bulk of the new capacity from Plant 6 

(+30% to existing capacity) will only come online in 2QFY3/14. We also 

introduce our FY3/15 forecast, projecting EPS growth of 9%, coming 

from the full-year contribution of Plant 6 and new capacity from its NGC 

plant at Sepang. Additionally, the proposed 1-for-1 bonus issue and 1-

for-5 free warrants will go ex- at end-May 2012.

Hold (unchanged)

Share price: MYR7.84

Target price: MYR8.50 (unchanged)

[Source]