Wednesday 9 May 2012

HARTA (FV RM9.39 - BUY) FY12 Results Review: Hitting The Mark


Hartalega’s FY12 results were within expectations. There was minimal movement in both its revenue and net profit from a q-o-q perspective. Nevertheless, on a YTD basis, both its revenue and net profit were higher, thanks to the higher selling price of gloves and higher production capacity, in spite of higher nitrile latex price, higher fuel cost and more competitive pricing  that resulted in some margin erosion. Maintain Buy with a FV of RM9.39 based on a FY13 PER of 15x.

Within expectations. The FY12 results were within consensus and our expectations, making 99% and 97% of the respective FY12 forecasts. Overall, the 4QFY12 results were quite consistent  on a  q-o-q  basis,  with its revenue of RM240.2m and net profit  of RM50.0m seeing marginal declines of -0.7% and  -1.4% respectively. Nevertheless, on a YTD comparison, its full-year  revenue of RM931.1m was up by 26.7%, mainly attributed to the higher selling price of gloves and higher production capacity.  Despite the higher percentage point increase in revenue Its YTD net profit  of RM201.7m was only up by 6.1% owing to higher nitrile latex price, higher fuel cost and more competitive pricing that resulted in some margin erosion.

Production capacity expansion proceeds as planned. Plant 6, which had begun construction in Feb 2012, expects its first production line to be operational by Aug 2012. In total, the plant will have 10 production lines and it expects to contribute 3.5bn pieces p.a. or  a  30% increase to its current production capacity of  around 9.0bn pieces p.a. Having said that, this bullish expansion was  premised  on the expectation that  demand growth for nitrile gloves will be sustained at 20% p.a. and there will be minimal price war in the global market.

Maintain Buy. Our fair value for Hartalega remains unchanged at RM9.39 based on the existing PER of 15x FY13 EPS. Also, the company had earlier  announced a 1:1 bonus issue and 1:5 free warrants and if we were to take into account of the resulting dilution, our revised fair value would be adjusted to RM4.25.  All in all, we continue to like the company for its pole position in the global production of nitrile gloves.

Source: OSK188

No comments:

Post a Comment