Stock With Momentum: Hartalega Holdings

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This article first appeared in The Edge Financial Daily, on October 1, 2015.

Hartalega Holdings Bhd (-ve)

SHARES of the world’s largest nitrile glove manufacturer Hartalega (Fundamental: 2.60/3, Valuation: 0.50/3) closed 4 sen lower at RM4.85 on heavy volume on Wednesday. 

Since going ex-bonus on September 14, Hartalega has climbed 16.7%, valuing the company at RM8 billion. It touched an all-time high of RM5.15 on September 29. Its competitor, Kossan Rubber Industries Bhd, has also seen strong buying interest and closed at an all-time high of RM7.73.

Hartalega, which produces 16 billion gloves annually, exports its products to 39 countries. Most of its sales are denominated in US dollars. 

For 1QFYMar2016, the company’s revenue increased 14.8% to RM320.5 million on the back of higher sales volumes and the strengthening US dollar. The latter helped mitigate the drop in the selling price of gloves, arising from price competition and lower raw material costs. 

Net profit, however, rose by 9.8% to RM62.7 million as higher maintenance and natural gas costs ate into its operating margins.

In the same quarter, the company started construction of 2 more plants and supporting facilities at its Next Generation Integrated Glove Manufacturing Complex (NGC). To date, 2 plants have already been completed and are contributing positively to the company’s earnings. 

Upon completion in the fourth quarter of 2021, the NGC will have six high capacity manufacturing plants that will house 72 production lines. This will boost the company’s glove production capacity to 42 billion pieces a year.

At current levels, the stock appears expensive. It trades at a trailing 12-month P/E of 37 times and price to book of 5.8 times. The company has a minimum dividend payout policy of 45%. The 6.5 sen in dividends paid out in the last 12 months translates to a net yield of 1.3%.