Hartalega Holdings Bhd (Nov 9, RM5.55)
Maintain buy with target price RM7.33: Hartalega’s 1HFY12 revenue grew 26.7% year-on-year (y-o-y) to RM448.9 million. The strong top line growth was attributed to: (i) higher average selling prices (ASP), in tandem with higher nitrile latex prices; and (ii) 28.8% y-o-y increase in glove volume sales. Earnings before interest and taxes (Ebit) margin was slightly lower at 31.1% against 31.9% in 1HFY11. This is most likely attributed to stronger competition from increased nitrile glove production by other glove manufacturers.
Overall, 1HFY12 headline net profit grew by 13.9% y-o-y to RM100.9 million. This includes a RM8.7 million loss on foreign exchange and changes in fair value for forward foreign exchange contracts (1HFY11 saw a gain of RM3.1 million).
Stripping out extraordinary income, 1HFY12 core net profit grew by a sharper 28.1% y-o-y to RM109.6 million. Results were within expectations, accounting for 53% and 52% of our and consensus full-year estimates. Hartalega also declared a first interim dividend of six sen per share.
Sales volume in 2QFY12 slipped by 1.6% q-o-q, offset by higher ASP for nitrile gloves (+8.5% q-o-q). Overall, 2QFY12 revenue grew by 4.6% q-o-q to RM229.5 million, while bottom line declined by 15.8% q-o-q to RM46.1 million. Excluding the forex losses, 2QFY12 net profit was flat q-o-q at RM54.8 million.
On a y-o-y basis, 2QFY12 net profit surged 20.4%, on the back of a 24.5% increase in revenue. The strong performance was attributed to: (i) 23.2% y-o-y increase in volume sales; and (ii) higher ASP for natural rubber and nitrile gloves (+10.6% y-o-y and +1.8% y-o-y, respectively).
In terms of geographical breakdown, sales to North America remained steady, accounting for 55.3% of total revenue in 2QFY12 (1QFY12: 55.5%). Demand from Europe continued to grow strongly, with its proportion of revenue contribution rising from 27.6% in 1QFY12 to 33.2% in 2QFY12. We expect demand from Europe to remain robust as the demand switch to nitrile gloves is still gathering momentum.
No change to our FY12 to FY14 net earnings forecasts. We have already factored in weaker margins from stronger price competition. We continue to like Hartalega for: (i) reduced exposure to volatile latex prices; (ii) strong technological and operational efficiencies; and (iii) attractive valuations (CY12 price-earnings ratio of 8.6 times against the sector average of 10 times).
Hartalega also offers high dividend yields of 5% to 6%. Maintain “buy”, with an unchanged target price of RM7.33. — Affin Investment Bank, Nov 9
This article appeared in The Edge Financial Daily, November 10, 2011.
Maintain buy with target price RM7.33: Hartalega’s 1HFY12 revenue grew 26.7% year-on-year (y-o-y) to RM448.9 million. The strong top line growth was attributed to: (i) higher average selling prices (ASP), in tandem with higher nitrile latex prices; and (ii) 28.8% y-o-y increase in glove volume sales. Earnings before interest and taxes (Ebit) margin was slightly lower at 31.1% against 31.9% in 1HFY11. This is most likely attributed to stronger competition from increased nitrile glove production by other glove manufacturers.
Overall, 1HFY12 headline net profit grew by 13.9% y-o-y to RM100.9 million. This includes a RM8.7 million loss on foreign exchange and changes in fair value for forward foreign exchange contracts (1HFY11 saw a gain of RM3.1 million).
Stripping out extraordinary income, 1HFY12 core net profit grew by a sharper 28.1% y-o-y to RM109.6 million. Results were within expectations, accounting for 53% and 52% of our and consensus full-year estimates. Hartalega also declared a first interim dividend of six sen per share.
Sales volume in 2QFY12 slipped by 1.6% q-o-q, offset by higher ASP for nitrile gloves (+8.5% q-o-q). Overall, 2QFY12 revenue grew by 4.6% q-o-q to RM229.5 million, while bottom line declined by 15.8% q-o-q to RM46.1 million. Excluding the forex losses, 2QFY12 net profit was flat q-o-q at RM54.8 million.
On a y-o-y basis, 2QFY12 net profit surged 20.4%, on the back of a 24.5% increase in revenue. The strong performance was attributed to: (i) 23.2% y-o-y increase in volume sales; and (ii) higher ASP for natural rubber and nitrile gloves (+10.6% y-o-y and +1.8% y-o-y, respectively).
In terms of geographical breakdown, sales to North America remained steady, accounting for 55.3% of total revenue in 2QFY12 (1QFY12: 55.5%). Demand from Europe continued to grow strongly, with its proportion of revenue contribution rising from 27.6% in 1QFY12 to 33.2% in 2QFY12. We expect demand from Europe to remain robust as the demand switch to nitrile gloves is still gathering momentum.
No change to our FY12 to FY14 net earnings forecasts. We have already factored in weaker margins from stronger price competition. We continue to like Hartalega for: (i) reduced exposure to volatile latex prices; (ii) strong technological and operational efficiencies; and (iii) attractive valuations (CY12 price-earnings ratio of 8.6 times against the sector average of 10 times).
Hartalega also offers high dividend yields of 5% to 6%. Maintain “buy”, with an unchanged target price of RM7.33. — Affin Investment Bank, Nov 9
This article appeared in The Edge Financial Daily, November 10, 2011.
