HARTA (5168) - Hartalega Holdings - Better 3Q performance
Target RM8.42 (Stock Rating: ADD)
Hartalega’s 9MFY15 net profit was in line with expectations, meeting 73% of our full-year forecast and 70% of consensus’s. The weaker results were mainly due to a weak 1H15 that was impacted by higher operating cost. Although 3QFY15 net profit continued to post a slight yoy drop, it was much better than the performance in the past four quarters, thanks to the stronger sales volume. We expect a better 4Q performance due to maiden contribution from its NGC plant and a stronger US$/RM rate. We maintain our target price (based on 21x CY16 P/E or its 2-year historical mean) and Add call. The return to strong earnings growth in FY16 is a potential re-rating catalyst.
3Q net profit reported smaller contraction
Although Hartalega’s 9MFY15 revenue improved 1.7% on higher sales volume (+8% yoy), its core net profit declined 14.2% yoy. The sharp decline in the bottomline was mainly due to the weak results in 1HFY15, no thanks to increases in electricity and natural gas tariffs as well as maintenance costs that the company was unable to fully pass on to its customers. It was also impacted by the high start-up cost of its next generation complex (NGC) and investments in branding. Although its 3QFY15 net profit continued to post a slight core earnings contraction of 1.2% vs. 6.9% yoy revenue growth, it was much better than the earnings reported in the past four quarters. The stronger revenue was driven by the higher sales volume as Hartalega refurbished old lines in 3QFY14, while the decline in net profit was due to the start-up expenses from the NGC project as well as increases in electricity and natural gas costs. The effective tax rate was also higher at 28% vs. 22.8% last year due to the under provision of tax last year. Despite the stronger US$ vs. the RM, 3Q ASP was still lower yoy.
Earnings slid qoq
On a qoq basis, revenue increased 4.1% due to the stronger US$ against the RM and slightly higher sales volume, but core net profit slid 5.9% due to the higher start-up cost incurred for its new NGC plant (RM5.8m vs. RM3m-4m last quarter), realised forex losses, higher gas costs and a higher effective tax rate.
NGC started maiden production
Hartalega’s two new production lines started commercial production in early Jan 2015 and the third line commenced operations this month.
Source: CIMB Daybreak - 11 February 2015
Target RM8.42 (Stock Rating: ADD)
Hartalega’s 9MFY15 net profit was in line with expectations, meeting 73% of our full-year forecast and 70% of consensus’s. The weaker results were mainly due to a weak 1H15 that was impacted by higher operating cost. Although 3QFY15 net profit continued to post a slight yoy drop, it was much better than the performance in the past four quarters, thanks to the stronger sales volume. We expect a better 4Q performance due to maiden contribution from its NGC plant and a stronger US$/RM rate. We maintain our target price (based on 21x CY16 P/E or its 2-year historical mean) and Add call. The return to strong earnings growth in FY16 is a potential re-rating catalyst.
3Q net profit reported smaller contraction
Although Hartalega’s 9MFY15 revenue improved 1.7% on higher sales volume (+8% yoy), its core net profit declined 14.2% yoy. The sharp decline in the bottomline was mainly due to the weak results in 1HFY15, no thanks to increases in electricity and natural gas tariffs as well as maintenance costs that the company was unable to fully pass on to its customers. It was also impacted by the high start-up cost of its next generation complex (NGC) and investments in branding. Although its 3QFY15 net profit continued to post a slight core earnings contraction of 1.2% vs. 6.9% yoy revenue growth, it was much better than the earnings reported in the past four quarters. The stronger revenue was driven by the higher sales volume as Hartalega refurbished old lines in 3QFY14, while the decline in net profit was due to the start-up expenses from the NGC project as well as increases in electricity and natural gas costs. The effective tax rate was also higher at 28% vs. 22.8% last year due to the under provision of tax last year. Despite the stronger US$ vs. the RM, 3Q ASP was still lower yoy.
Earnings slid qoq
On a qoq basis, revenue increased 4.1% due to the stronger US$ against the RM and slightly higher sales volume, but core net profit slid 5.9% due to the higher start-up cost incurred for its new NGC plant (RM5.8m vs. RM3m-4m last quarter), realised forex losses, higher gas costs and a higher effective tax rate.
NGC started maiden production
Hartalega’s two new production lines started commercial production in early Jan 2015 and the third line commenced operations this month.
Source: CIMB Daybreak - 11 February 2015
