RHB Research upgrades Hartalega to Buy, raises fair value to RM7.70

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KUALA LUMPUR (Sept 25): RHB Research has upgraded Hartalega Holdings Bhd to a Buy at RM6.98 with a higher fair value of RM7.70 (from RM6.95) and said Hartalega’s next generation complex (NGC) expansion plan was on track, with the first two lines likely to commence operations by end 2014.

In a note Thursday, the research house said overcapacity concerns were exaggerated, and that Hartalega’s superior margin would help it weather the competitive environment, even if the competition is getting stiffer.

It said that although Hartalega has to lower its average selling price (ASP) due to intense competition in nitrile gloves, which translates into a decline in margin, it is still able to keep its net margin at 19%-20%.

“Going forward, Hartalega aims to keep its net margin at around 20% through various measurements, such as launching cost savings initiatives and improving production efficiencies.

“We think that overcapacity concern is exaggerated. Furthermore, at a net margin of 20%, Hartalega is still at a more advantageous position even if the competition grows stiffer,” it said.