Hartalega’s earnings to improve with expansion, improving global sales
KUCHING: With stable margins and higher production capacity, Hartalega Holdings Bhd (Hartalega) is on track to realising better earnings visibility through increased global sales, especially with high expectations of a rapidly growing global market, especially in Asia.
The glove maker’s fourth quarter financial year 2013 (4QFY13) earnings came in at RM62 million, up three per cent quarter on quarter (q-o-q) which took full financial year 2013 ending March (FY13) earnings to RM235 million, up 16 per cent year on year (y-o-y).
Meanwhile, 4QFY13 revenue grew four per cent q-o-q driven by higher utilisation (92 per cent compared with 90 per cent in 3QFY13) and two additional lines at the company’s Factory 6. This effectively raised capacity by three per cent q-o-q.
The average selling price was flat in 4QFY13 as lower raw material costs were offset by higher wages and, as a result, operating margin was stable at 30 per cent, according to HwangDBS Vickers research Sdn Bhd (HwangDBS Research) in a stock update yesterday.
“Easing raw material costs offset higher labour costs from the minimum wage requirement. There may be small upside to our forecast earnings if Hartalega is able to maintain its pricing power for nitrile gloves and operating margins (29 per cent for full year FY13)
“North America remained Hartalega’s largest market (58 per cent of total sales) but it is progressively making inroads in Asia (currently 10 per cent of total sales),” it said.
Meanwhile, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) pointed out that Plant 6 would have 10 production lines for nitrile gloves at 45,000 pieces per hour per line, 25 per cent more than the current ones.
“This will bring its production capacity in Plant 6 to 3.9 billion pieces per annum, which will increase its total end-FY14 production capacity by 27 per cent to 14 billion pieces. The plant is expected to be fully completed in mid-2013. To date, we understand that seven production lines have already been commissioned.
“The remaining three lines are expected to contribute progressively starting from 4QFY13. The construction of the remaining three will give a total of 10 lines in Plant 6,” it noted.
Kenanga Research was positive on Hartalega for the latter’s ‘highly automated production processes’ model, solid improvement in its production capacity and a reduction in costs, its superior quality nitrile gloves through product innovation, and its positioning in a booming nitrile segment with a dominant market position.
Describing Hartalega as an ‘industry leader in terms of terms of margins, efficiency and technology’, the research team remained positive on the stock with an unchanged target price of RM5.93 per share, based on 15-fold 2014 earnings per share (EPS).
HwangDBS Research noted that Hartalega continued to deliver the highest margins and return on equity in the sector and maintained its target price of RM5.50 per share, pegged to 15.5 times 2014 EPS.