Hartalega to see robust FY18
KUCHING: Hartalega Holdings Bhd ( Hartalega) is expected to see a robust financial year 2018 ( FY18) but analysts opined that all positives have already been reflected in the company’s current stock price.
Maybank Investment Bank Bhd’s research arm ( Maybank IB Research) said, “We think the earnings per share growth momentum should sustain as the higher average selling prices (raised in January to April 2017) will be realised in the first quarter of FY18 (1QFY18) upon the delivery of gloves.
“Additionally, nitrile rubber ( NBR) cost is on a downtrend, having fallen 22 per cent from 4QFY17’s average.”
Therefore, the research arm raised the forecast of Hartalega’s FY18 and FY19.
“We project EPS growth of 29, 13 and two per cent in FY18 to FY20, based on volume growth assumption of 19, 10, and three per cent and earnings before interest, tax, depreciation and amortisation ( EBITDA) margin expansion of 0.7 to 1.6 ppt on better efficiency/ lower overhead cost,” it added.
Meanwhile, the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) pegged a more ‘ neutral’ view on the stock.
It explained, “Despite the more positive outlook for Hartalega in FY18 we think the call is fair as we opine that all positives have been priced in at this juncture.
“In addition, Hartalega’s valuation which remains lofty at 34.1folds FY17 price earnings ratio ( PER) versus an average of 20folds for its peers remains unattractive.
“Furthermore, its share price which has surpassed our target price earlier this week which further limits the share price appreciation in our opinion.”
Of note, MIDF Research pegged a target price of RM5.07 per share. As at 3.40pm on Thursday, Hartalega traded at RM5.59.
On Hartalega’s performance for 4QFY17, the research team noted that Hartalega’s 4QFY17 earnings came in within expectations at RM89.4 million, which brings its FY17 earnings to RM283 million.
It pointed out that Hartalega’s revenue was boosted by increase in sales volume as in 4QFY17, sales volume for NBR increased by 22.8 per cent y-o-y while on a sequential basis, volume increased by 14.2 per cent q- o- q.
As for natural rubber gloves, MIDF Research noted that sales volume saw an increase of 42.3 per cent y- o-y and 8.1 per cent q- o- q respectively.
“The improved sales volume during the quarter was mainly attributable to better demand, high utilization rate of 89 per cent and, a more competitive product pricing.
“Meanwhile, the ASP for Hartalega’s gloves increased by 4.7 per cent q- o- q and 9.8 per cent yo-y due to higher raw materials price during the quarter which surged by about eight per cent qoq,” it said.
The research team also noted that the more stable condition of US dollar against ringgit which traded at a range of RM4.42 to RM4.48 per US dollar during the quarter assisted in boosting the revenue.