RHB IB says Hartalega eyeing new FY21 earnings record, raises target to RM19

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KUALA LUMPUR (July 6): RHB Investment Bank has maintained its “Buy” rating on Hartalega Holdings Bhd at RM16 with a higher DCF-derived RM19.00 target price (TP) from RM11.80, 19% upside and 1% yield.

In a note today, the research house said gloves demand is still increasing and it expects inventory levels to remain extremely tight.

“We raise our earnings estimates and TP due to higher average selling prices (ASPs).

“Our new TP reflects 43.7x CY21F P/E, or +1.5SD above the 5-year mean valuation.

“The premium is justified, given Hartalega’s highest exposure (96%) to nitrile gloves, which command better ASPs.

RHB said demand should continue to surge throughout 3Q20, as COVID-19 is still spreading.

It said in 2019, the US consumed an estimated 92.7 billion pieces pa (ppa) of gloves – equivalent to 35% of global demand.

“This makes it the biggest gloves consumer globally.

“As COVID-19 cases remain high in the US, gloves demand should stay exceptionally high due to the essential need to protect healthcare workers,” it said.

RHB said it has increased Hartalega’s FY21F-23F (Mar) earnings forecasts by 32-50%.

“In the short term, 1QFY21 core earnings should be much better, as it reflects the full quarter of ASP increases.

“Post COVID-19, Hartalega’s earnings growth outlook remains positive, as we expect gloves demand to continue its usual uptrend of 8-10% growth due to higher hygiene awareness globally,” it said.