Hartalega has front-loaded its capex and we expect this to bring forward their capacity expansion plans. Consequentially, management has guided that Hartalega would be taking up a revolving credit facilityin FY16 (Mar) to ease cash flow for the firm. We switch our valuation to DCF from one-year forward P/E. We downgrade to NEUTRAL (from Buy) with a lower TP of MYR8.48 (vs MYR8.60), 0.3% downside
1M4UIt's like musical chair, one way rocket to the moon since IPO in 2008...valuations too high... Valuations getting out of market ranges for rubber gloves maker,,,,be it PE or P/NAPS. Law of diminishing returns in operation and is acelerating....the revenue generated per million pcs of glove produce is fast falling....so is dividend yield at this high price..
Hartalega’s full year FY15 revenue registered RM1.1bn (+3.5% YoY), with earnings recording RM209.7m (-10.1% YoY). The results were broadly in line with our estimates, at 94.2% for revenue and 94.9% for revenue and earnings respectively. The marginally higher revenue resulted from higher sales volume YoY, enhanced by the maiden contribution from Next Generation Integrated Glove Manufacturing Complex (NGC) of about RM16.0m in sales since its commissioning in January this year. We believe at this juncture, the stock price has fundamentally outrun its estimates and thus we maintain a Neutral call, with a rolled over TP of RM7.85 premised on our DDM-approach which translates to 20.6x PE premised on FY16F EPS of 38.5sen.