Hartalega’s 9MFY17 results good on the back of quarterly improvements
KUCHING: Hartalega Holdings Bhd's (Hartalega) first nine months of financial year 2017 (9MFY17) results have come in above and within analysts' expectations, on the back of quarterly improvements.
As per the filing on Bursa Malaysia, Hartalega's profit before tax for year-to-date ended December 31, 2016 amounted to RM230.22 million down 6.5 per cent from RM246.17 million the year earlier.
According to the research arm of TA Securities Holdings Bhd (TA Research), Hartalega's 9MFY17 net profit declined by 1.2 per cent year on year (y-o-y) to RM193.6 million.
However, excluding foreign exchange losses arising from the revaluation of US dollar denominated loans and losses on derivatives amounting to RM39.7 million, core net profit increased by 9.4 per cent y-o-y to RM233.3 million, above TA Research's and consensus estimates at 86.1 per cent and 82.7 per cent respectively.
The research arm noted that the deviation was due to the quarter on quarter (q-o-q) improvements in operating efficiency and strengthening of the US dollar against the ringgit in the third quarter of financial year 2017 (3QFY17).
Meanwhile, Hartalega's first nine months of 2017 (9M17) profit after tax and minority interest (PATAMI) of RM194 million (down one per cent y-o-y) came in within the research arm of Kenanga Investment Bank Bhd's (Kenanga Research) expectations at 70 per cent of its and consensus full-year forecasts.
Kenanga Research noted that the third quarter of 2017 (3Q17) marked the second consecutive quarterly hike in average selling prices (ASPs).
A second interim dividend per share (DPS) of two sen was declared bringing 9M17 DPS to four sen which was also within the research arm's expectation.
Kenanga Research highlighted that looking ahead, due to the pent-up demand for rubber gloves, Next Generation Integrated Glove Manufacturing Complexes (NGCs) plant 1 and 2 are presently fully utilised.
Correspondingly, the research arm expected new capacity from the commissioning of six lines in plant 3 to boost 4Q17 earnings and higher ASPs in subsequent quarters.
“We would not be overly surprised if plant 3 is fully commissioned faster than expected on the back of a strong demand,” the research arm said.
It added that presently, there are six lines (circa two billion pieces or nine per cent of total capacity) operating in plant six.
Due to the lag effect in passing cost through as a result of higher natural gas and raw material (latex) costs, Kenanga Research expected glove makers to raise ASPs, which should contain high operating costs.
“Looking ahead, we expect earnings to jump upon the gradual ramp-up of the NGC.
“P r e s e n t ly, NGC has commissioned all 24 lines of plant 1 and 2 combined,” it said.
The research arm noted that Plant 3 will add circa four billion pieces (up 18 per cent) new capacity and provide the much- needed boost to FY18 earnings.
TA Research also expected earnings to be underpinned by new capacity from Plant 3 of the NGC in Sepang.
At a commissioning pace of one production line per month, six production lines at Plant 3 were expected to be up and running by the end of 4QFY17 which the research arm estimated to translate into circa nine per cent q-o-q growth in the group's overall installed capacity to 24.3 billion per annum.
While the competitive pressures endured since early 2016 appears to be easing, right now, managing fluctuations in the US dollar/ ringgit and key inputs, nitrile butadiene rubber (NBR), is of upmost importance as volatitility in these factors is disruptive to profitability.
“Nonetheless, in view of the rapid rise in price of NBR, management has alluded of its continuous attention to its trend and will renegotiate pricing with its customers to pass through further increases, albeit with a time lag,” the research arm said.