CIMB raises Hartalega’s target price to RM9.62

Written by Financial Daily
Friday, 06 November 2009 10:51

IF THE recent results posted by SUPERMAX CORPORATION BHD [] and LATEXX PARTNERS BHD [] are anything to go by, there is a high chance of similarly strong results from HARTALEGA HOLDINGS BHD [], said CIMB Research.

Hartalega’s annualised first-half 2010 (1H10) earnings were likely to exceed the research house’s full-year estimate of RM108.1 million by about 10%, largely due to stronger-than-expected sales especially from the nitrile segment, it said in a note yesterday.

CIMB Research said Hartalega’s second-quarter (2Q) results were scheduled to be released on Nov 10 and that the company appeared set to report net earnings of around RM33 million, up 25% quarter-on-quarter (q-o-q) and almost double 2Q09’s earnings.

“We believe the earnings drivers were the strong demand for the company’s products and higher pricing power due to the surplus in demand for gloves,” the research house pointed out.

According to CIMB Research, Hartalega had been running at full capacity compared to its average utilisation of 75% over the past six years due to the strong demand this year.

Hartalega’s capacity stood at 6.2 billion pieces per annum and the company started installing the first line for Plant 5 which would start contributing in February next year.

“Annual production capacity will increase to 6.4 billion pieces per annum,” it said, adding that Hartalega would take its annual production capacity to 10 billion pieces by FY12.

CIMB Researh said Hartalega had a policy of paying out about 25%-30% of its earnings as dividends, and that the company intended to pay interim dividends for 2Q and 4Q for this financial year and a final dividend.

The research house added that pending the release of the results, it would make no change to its earnings forecast.

“However, as we are now in the final quarter of 2009, we roll forward our target price to end-10 while retaining our valuation basis of 13.5 times P/E (price earnings), based on unchanged 10% discount to Top Glove’s 15 times target P/E,” said CIMB Research, stressing that this would lift its target price from RM7.32 to RM9.62.

In view of the favourable outlook for the company’s products, it maintained an outperform call.

Hartalega was unchanged at RM5.25 yesterday.


This article appeared in The Edge Financial Daily, November 6, 2009.