Hartalega Holdings - Within expectations

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 

Source: Kenanga