KUALA LUMPUR (Jan 19): RHB Investment Bank Bhd has maintained its “buy”rating of Hartalega Holdings Bhd at RM12.36 with a target price (TP) of RM23.50, and said it expects Hartalega’s earnings for the third quarter ended Dec 31, 2020 (3QFY21) to surge 643% year-on-year (y-o-y) and 65% quarter-on-quarter (q-o-q) to RM900 million.

In a note today, RHB’s Alan Lim said this was driven by an average selling price (ASP) increase estimated at 50% q-o-q.

“On top of superb earnings, we like Hartalega for its gold standard in Covid-19 prevention among its workers.

“Our TP reflects 21.5 times FY22F P/E (forecast price-earnings) or -1.1SD (standard deviation) below its five-year average,” he said.

Lim said he expects Hartalega to release its 3QFY21 earnings in the next two to four weeks, based on historical observations of its result date releases.

“Our estimate shows that its 3QFY21 earnings should surge 643% y-o-y and 65% q-o-q to RM900 million. This should be a new record high for the company.

“An ASP hike is the key reason behind expected exceptional earnings. We believe that Hartalega’s 3QFY21 ASP should have jumped by 50% q-o-q to about US$50 (RM202.40) per box of 1,000 pieces of gloves,” he said.

Lim added that this is consistent with the rate of increase in the market price.

“Recall that Top Glove Corp Bhd ("buy"; TP: RM8.45) guided for a 30% q-o-q ASP increase for the quarter of December 2020 to February 2021.

“As Hartalega’s ASP comes from a low base of US$33.80 per box in 2QFY21, the magnitude of the increase is likely to be higher,” he explained.

Lim said risks include worse-than-expected glove demand after the Covid-19 pandemic ends, a lower-than-expected sales volume/US dollar, and higher-than-estimated raw material prices.