KUALA LUMPUR (Aug 5): Although Hartalega Holdings Bhd’s share price retreated this morning despite the delivery of record-high quarterly profit, most investment analysts remain upbeat of its prospects.
At 10.56am, shares in Hartalega were 18 sen or 0.9% lower at RM19.76, valuing the counter at RM68.35 billion. It saw 5.44 million shares transacted, substantially lower than its 200-day average volume of 8.32 million.
Analysts covering the stock raised their target prices amid expectation that the nitrile glove maker will deliver stronger earnings in the second financial quarter ending Sept 30, 2020 (1QFY21).
MIDF Research analyst Ng Bei Shan said the research house maintained its ‘neutral’ rating on Hartalega with a higher target price of RM20.73 (from RM15.79), which is pegged to FY21F earnings per share of 37.7 sen to PER of 55 times.
“Our PER valuation is of about +2SD (standard deviation) of its five-year mean, and is currently warranted due to the resilient outlook for Hartalega in the near to medium term. We maintain our ‘neutral’ recommendation as we believe that its near-term positives have been largely priced in at this juncture.
“Upside risks to our call include higher-than-expected ASPs and lower-than-expected raw material costs. On the flipside, higher-than-expected supply of gloves in the market and sudden plunge in new daily Covid-19 cases may pose threats to its outlook,” she wrote in a note.
Meanwhile, CGS-CIMB Research analyst Walter Aw raised the glove maker’s target price to RM24.30 (from RM20), pegged to an unchanged 41 times calendar year of 2021 P/E (1SD) above its five-year mean.
“Backed by its industry-leading margins, we think Hartalega will continue to benefit from the current favourable operating environment for glove makers, as a vaccine for Covid-19 may be some time away,” he said.
Public Investment Bank Bhd analyst Chua Siu Li said the research house raised its earnings assumption for FY21-FY23F by 50% to 120% to account for the higher average selling price (ASP) and subsequently raised target price to RM21.70 as well as maintained a ‘neutral’ call on the sector.
“Hartalega will be raising its ASP by 30% q-o-q in 2QFY21 and 3QFY21. With that, we adjust our earnings forecast for FY21-FY22F by 51%-120% to account for the ASP hike in the coming months.
“We also highlight that the nitrile butadiene prices are expected to trend higher given the tight supply, however, we believe the increase in cost can be sufficiently covered by the rise in ASP,” said the analyst.
Besides, Kenanga Investment Bank Bhd also raised its target price to RM24.66 (from RM22.30) based on an unchanged 43 times CY21E revised earnings per share as it reiterates ‘outperform’ on Hartalega.
Its analyst Raymond Choo Ping Khoon raised Hartalega’s FY21E/FY22E net profit by 10% or 11% after imputing higher ASP.
“We like Hartalega for its solid management, constantly evolving via innovative products development, and its booming nitrile gloves segment,” Choo noted.
To recap, Hartalega reported a 134% jump in net profit in the first quarter result ended June 30, 2020 (1QFY21) to RM219.72 million as revenue rose on higher rubber glove sales volume and ASPs.