HARTALEGA HOLDINGS BHD

Target Price: RM9.10

MAYBANK IB Research said the sequentially flattish third quarter ended Dec 31, 2017 was within expectations and kept its earnings per share forecasts unchanged.

For the first nine months ended Dec 31, 2017, Hartalega posted a net profit of RM323mil, a 67% increase, making up 73% and 74% of Maybank’s and street’s full-year forecasts, respectively.

Separately, Hartalega has proposed a 1-for-1 bonus issue which the research house said would help boost its trading liquidity.

However, Maybank pointed out that Hartalega is trading at one year rolling forward price-earnings ratio (PE) of 38 times and that all positives have been priced in.

Hence, it reiterated its “sell” call on Hartalega shares with target price of RM9.10, which is unchanged 2019 PE of 29 times.

It said the year-on-year jump in third quarter net profit (71%) was because of strong sales volume growth (36% y-o-y) and the massive forex-related loss of RM30mil, in third quarter. However, on a quarter-on-quarter basis, bottomline was flattish.

Hartalega’s plant utilisation rate stands at a high about 90% now and the last 2 lines at Plant 4 will commercialise in fourth quarter ending March 31, 2018.

Maybank said it expected that Hartalega’s earnings could be flattish q-o-q on the fourth quarter as the capacity-driven volume growth could be offset by a slightly weaker margin.

Although the company has raised its ASP by 3% in January 2018, it may only reflect the higher costs (gas, foreign worker levy) and not the weaker US dollar/ringgit.