KUALA LUMPUR (Aug 5): Hong Leong IB Research has maintained its “Hold” rating on Hartalega Holdings Bhd with a higher target price of RM8.87 (from RM8.45) and said Hartalega’s 1QFY16 sales revenue grew on the back of higher sales volume (up 15.4% year-on-year), which are mainly being supported by capacity expansion at NGC plant.

In a note today, the research house said this had partially mitigated the impact of lower average selling price (ASP) for both latex and nitrile (-2.9% q-o-q and -3.8% q-o-q, respectively).

“EBITDA margin has reduced from 30.9% in 1Q15 to 29.6% in 1Q16, mainly attributable to ASP reduction as well as higher maintenance and natural gas costs. However, on a QoQ basis, EBITDA margin has improved sequentially from 26.2%, thanks to better operating efficiency at NGC plant,” it said.

HLIB Research said sales mix was noticed to be trending towards nitrile.

It said this was evident by higher revenue contribution from North America region and concurrently lower revenue contribution from Latin America.

“Reiterate Hold with a higher target price of RM8.87 (previously RM8.45) as we lift our P/E from 18.4x to 21.7x based on 1SD above 5-year historical average P/E.

“Our previous P/E multiple was too conservative as it was derived from 5-year historical average from 2009 to 2013, which in our view is not relevant in the current environment of stronger US dollar,” it said.