CIMB IB Research raises target price for Hartalega to RM6.30

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KUALA LUMPUR (Aug 8): CIMB IB Research has maintained its "hold" rating on Hartalega Holdings Bhd at RM6.17 with a higher target price of RM6.30 (from RM5.75) and said Hartalega's first financial quarter ended June 30, 2018 (1QFY19) results were in line with house and consensus expectations.

In a note Aug 7, CIMB IB Research said Hartalega's earnings before interest, tax, depreciation and amortisation (EBITDA) expanded 1.5% year-on-year to 24.4% in 1QFY19, mainly attribute to higher economies of scale and better overall cost efficiency.

"Overall, we deem 1QFY19's net profit in line at 23.8% of our full-year estimate as we expect stronger quarters ahead," the research house said.

CIMB IB Research added the strong quarter expectation was mainly coming from the rollout of new capacity.

"The first of 12 lines at Plant 5 (capacity of 4.5 billion p.a. when fully commissioned) began commercial production in Aug 18; ramp-up plans call for the installation of two lines per month going forward. Plant 6 is also under construction; we expect a gradual ramp-up in production starting 1QFY20 (2QCY19). The group also said it has plans for a smaller plant, Plant 7, to make specialty gloves with lower volume but higher margins. We gather commercial production for Plant 7 is slated for 2HCY19," it said.

Meanwhile, CIMB IB Research said Hartalega will launch its anti-leaching microbial gloves in Europe in the second half of 2018 (2H18), and the group also targeted to sell one billion pieces of the product for financial year ending March 31, 2019 (FY19).

"It has also applied to US Food and Drug Administration (FDA) and is aiming for an approval by 1QCY20 for the sale the new gloves to the US market," it added.

"We make no changes to our FY19-21F EPS estimates," it said.

At 10.29am, Hartalega rose 2.59% or 16 sen to RM6.33 with 2.56 million shares traded.