Hartalega: Demand for nitrile gloves still healthy
Written by The Edge Financial Daily
Wednesday, 09 February 2011 11:55
Hartalega Holdings Bhd
Feb 8, RM5.61)
Maintain market perform at RM5.63 with revised target price of RM6.14 (from RM5.64): Hartalega’s 3QFY11 ending March core net profit came in slightly above our but within consensus expectations with 9M core net profit of RM135 million (+39.6% year-on-year) accounting for 78% and 76% of our and consensus estimates respectively.
The key variance was due to the slightly higher than expected utlisation rate — 9M utilisation rate was 84% agaibnst our full-year FY11 utilisation rate assumption of 82%. Demand for nitrile gloves remained strong during the quarter as Hartalega continued to benefit from switching from natural rubber to nitrile gloves in view of escalating latex prices.
Quarter-on-quarter (q-o-q), sales volume grew slightly thanks to the three new lines in Plant 5, which were commissioned during the quarter. As a result, sales revenue rose 2.1% q-o-q. Coupled with a lower effective tax rate of 20.9% against 22.8% in 2Q11, 3Q core net profit rose 5.5% q-o-q.
Hartalega declared a second interim single-tier dividend per share (DPS) of 5 sen (3Q10: 5 sen), which brings total year-to-date net DPS of 9 sen (9MFY10: 10 sen). This translates to a net yield of 1.6%.
The company is embarking on a new expansion plan (Plant 6) on a vacant piece of land adjacent to its five existing factories. This factory will house 12 lines (+3 billion pieces), which will focus on producing nitrile gloves.
Construction of this new plant will start in June 2011, with two lines slated to start commercial production in December 2011. Total capex needed for this expansion plan is around RM120 million, to be spread over two years and will be funded by internally generated funds. In total, the expansion into Plant 6 would increase Hartalega’s annual production capacity from 8 billion pieces currently to 9 billion by FY12 and 13 billion in FY13.
Risks included higher than expected raw material prices, which may result in margin contraction; and appreciating ringgit against the US dollar.
We have revised our FY11/13 revenue forecasts by 2.9% to 17.1% following the higher than expected utilisation rate achieved by Hartalega thus far and after factoring in the additional capacity from Plant 6. As such, our FY11/13 net profit forecasts have been raised by 4.1% to 18.4%.
We have raised our fair value for Hartalega to RM6.14 (from RM5.64), based on an unchanged target CY11 PER of 10.5 times. As the potential upside to our fair value is still in line with our expected market return, we maintain our “market perform” call on the company. — RHB Research Institute Sdn Bhd, Feb 8
Written by The Edge Financial Daily
Wednesday, 09 February 2011 11:55
Hartalega Holdings Bhd
Feb 8, RM5.61)
Maintain market perform at RM5.63 with revised target price of RM6.14 (from RM5.64): Hartalega’s 3QFY11 ending March core net profit came in slightly above our but within consensus expectations with 9M core net profit of RM135 million (+39.6% year-on-year) accounting for 78% and 76% of our and consensus estimates respectively.
The key variance was due to the slightly higher than expected utlisation rate — 9M utilisation rate was 84% agaibnst our full-year FY11 utilisation rate assumption of 82%. Demand for nitrile gloves remained strong during the quarter as Hartalega continued to benefit from switching from natural rubber to nitrile gloves in view of escalating latex prices.
Quarter-on-quarter (q-o-q), sales volume grew slightly thanks to the three new lines in Plant 5, which were commissioned during the quarter. As a result, sales revenue rose 2.1% q-o-q. Coupled with a lower effective tax rate of 20.9% against 22.8% in 2Q11, 3Q core net profit rose 5.5% q-o-q.
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The company is embarking on a new expansion plan (Plant 6) on a vacant piece of land adjacent to its five existing factories. This factory will house 12 lines (+3 billion pieces), which will focus on producing nitrile gloves.
Construction of this new plant will start in June 2011, with two lines slated to start commercial production in December 2011. Total capex needed for this expansion plan is around RM120 million, to be spread over two years and will be funded by internally generated funds. In total, the expansion into Plant 6 would increase Hartalega’s annual production capacity from 8 billion pieces currently to 9 billion by FY12 and 13 billion in FY13.
Risks included higher than expected raw material prices, which may result in margin contraction; and appreciating ringgit against the US dollar.
We have revised our FY11/13 revenue forecasts by 2.9% to 17.1% following the higher than expected utilisation rate achieved by Hartalega thus far and after factoring in the additional capacity from Plant 6. As such, our FY11/13 net profit forecasts have been raised by 4.1% to 18.4%.
We have raised our fair value for Hartalega to RM6.14 (from RM5.64), based on an unchanged target CY11 PER of 10.5 times. As the potential upside to our fair value is still in line with our expected market return, we maintain our “market perform” call on the company. — RHB Research Institute Sdn Bhd, Feb 8
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