Kenanga maintains 'outperform' on Hartalega (HARTA, 5168)
KUALA LUMPUR: Kenanga Investment Bank Research is confident over Hartalega Holdings Bhd's prospects over the coming quarters on expectations of continued demand and rising average selling prices (ASP).
Following a meeting with Hartalega, the research house raised its FY21 and FY22 net profit by 45% and 106% respectively to account for higher ASP assumptions.
"We highlight that industry ASP has risen for Sept to Nov delivery suggesting that the robust demand will continue over the next few quarters.
In line with higher industry ASP, HARTA is expected to raise ASP by 30% and 40% in 2QFY21 and 3QFY21, respectively," it said.
It added that Hartalega is confident of sustained strong demand with capacity booked up until end-2021, which reassures that the lagged impact from the ASP hike will be felt in 2H 2021.
Kenanga maintained its "outperfrom" recommendation and target price of RM26.22 based on 19.7x 2021 earnings per share, after lowering its price-earnings rating as it believes valuations are already pegged to super-normal earnings.
Meanwhile, with the progressive commission of Plants 6 and 7, the group's annual installed capacity is expected to increase from the current 39 billion to 44 billion pieces by FY22.
"Beyond plant 7, NGC 1.5 is expected to have four plants built with an estimated capacity of 19b pieces and construction is expected to start some time in 2021.
"NGC 2 is expected to have 82 new production lines with a capacity of 32.3b pieces which we believe would be mostly for nitrile gloves and to start in 1Q 2022," it said.