Hartalega draws mixed forecasts after reporting lower 3Q profit

Hartalega

Analysts are mixed in their views over Hartalega Holdings Bhd’s future earnings after the glove company, the darling of many analysts, reported weaker results for its third quarter (3Q) in the current financial year.

Yesterday, the group said its 3Q net profit fell four per cent to RM57.88 million, while revenue rose slightly by 3% to RM267.82 million.

A second interim dividend payment of 3.5 sen per share was also announced by Hartalega.

Maybank Investment Bank Bhd, maintaining its “hold” call on Hartalega with an unchanged target price (TP) of RM7.10, said it expected better earnings from the group in the next quarter.

“We expect better earnings in the next quarter as the company has resumed full production after the plant maintenance in 3QFY14,” said the research house today.

At 12.30 pm lunch break, Hartalega was traded at RM7.04, up 3 sen or 0.4% from RM7.01, with some 259,600 shares done.

Maybank IB said that revenue had slipped by 5% quarter-on-quarter (q-o-q) as the group lowers its average selling price (ASP) to reflect lower nitrile glove costs in 2QFY14 and also pricing pressure from its competitors.

Going forward, the research house expects demand for nitrile gloves will maintain its strength, driven by demand from the US and European markets, which are more inclined to pay for quality.

“However, there is a constraint to Hartalega’s earnings growth as its new capacity will only kick in progressively from 4Q14 onwards,” said Maybank IB.

But UOB Kay Hian Research Pte Ltd holds a differing view on the company.

It maintains a “sell” call on the stock as it sees downside to its share price. Its TP for the stock is RM5.44.

The research house said that the lack of new production capacity would impact earnings growth for the next few quarters despite the strengthening of the US dollar.

“While the strengthening greenback should offer some short-term respite, the lack of new production capacity coming on-stream would remain a drag on earnings growth over the next 3 to 4 quarters,” said the research house.

UOB Kay Hian added that the industry’s build-up in nitrile glove production capacity may also impact the group’s margins over time.

Source: The Edge
Published: 12 Feb 2014