KUALA LUMPUR (Aug 11): AmInvestment Research and Kenanga Research have raised Hartalega Holdings Bhd’s earnings forecasts after the group announced its latest expansion plans to build additional glove manufacturing facilities.
“We have raised our earnings forecasts by 3.7% for FY22 (the financial year ending March 31, 2022) and 12.9% for FY23 to reflect the latest expansion plans.
“We assume a total capacity of around 45.5 billion pieces per annum by end-2021 and 53.6 billion pieces per annum by end-2022. However, we may adjust our earnings forecasts pending further details of [the] expansion timeline from management,” said AmInvestment Research noted in a report today.
Meanwhile, Kenanga Research raised Hartalega’s FY21/FY22 net profit forecasts by 18%/24% respectively after imputing a higher average selling price (ASP) from US$34 (RM142.72)/1,000 pieces to US$41 and US$43, as well as raising its earnings before interest, taxes, depreciation and amortisation (Ebitda) margin forecast from 39% to 42%.
To recap, Hartalega announced that it is buying a 60.57-acre (24.51ha) piece of land in Labu, Sepang, Selangor for RM158.3 million to build additional glove manufacturing facilities (the Next Generation Integrated Glove Manufacturing Complex [NGC] 1.5), which will see its installed capacity increase by 19 billion pieces per year, in a filing with Bursa Malaysia yesterday.
AmInvestment Research is positive on the development as the local research house believes it would allow the group to take advantage of a surge in demand due to the Covid-19 pandemic.
“As all necessary infrastructure is already available, we believe that the first line could be completed as quickly as within nine months (the second quarter of calendar year 2021 or 2QCY21),” it noted.
The research house continues to like Hartalega for its long-term prospects, underpinned by capacity expansion, product innovation and superior operating efficiencies.
“We believe the group will benefit from the Covid-19 pandemic as demand for gloves outstrips supply. However, we believe that the stock is fully valued with a PER (price-earnings ratio) of 50 times FY22F EPS (forecast earnings per share).
“We maintain our ‘hold’ recommendation for Hartalega with a higher fair value (FV) of RM18.74 (previously RM18.58). Our valuation is based on 45 times CY21F EPS,” AmInvestment Research noted.
Meanwhile, Kenanga Research reiterated its "outperform" call for the group, and raised its target price (TP) from RM24.66 to RM26.22 based on 38 times CY21F revised EPS.
“We have lowered our PER rating as we believe valuations are already pegged at supernormal earnings. Hence, the upside to peak earnings should have been factored in. We like Hartalega for its solid management, constantly evolving via innovative product development, and its booming nitrile glove segment,” it added.
At the time of writing, shares in Hartalega were 14 sen or 0.76% higher at RM18.50, valuing the group at RM62.93 billion. It saw some 2.33 million shares traded.