PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 24 Sep 2020, 10:46 AM


Hartalega Holdings Berhad- More Aggressive ASP Hikes Ahead

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Hartalega’s 1QFY21 net profit rose 133.6% YoY to RM219.7m, which was below both our and consensus estimates at 16% of full-year forecasts respectively. However, we deem the results in line with our projections, given that we are expecting sequentially stronger performance in the coming quarters, supported by an ASP hike. We highlight that Hartalega’s ASP lags the other industry players and in order to match the current market price for gloves, Hartalega will be undergoing an aggressive ASP hike by 30% QoQ in 2QFY21 and 3QFY21. With that being said, we raise our earnings assumption for FY21-23F by 50-120% to account for the higher ASP and we subsequently raise our TP to RM21.70. Reiterate Neutral on Hartalega.

  • Ramping up capacity. Hartalega’s 1QFY21 revenue jumped 43.7% YoY to RM920.1m, attributed to a strong growth in sales volume (+38.1% YoY) as the Group ramped up its utilization rate to 100% (1QFY20: 76%) and also commissioning 2 additional lines during the quarter. ASP also rose 4.1% YoY, due to the sudden spike in gloves demand. Note that Hartalega’s ASP hike was less aggressive as compared to other industry players, so as to not disrupt its customers’ supply, given that its customers are large distributors for medical supplies. As evident by the utilization rate, Hartalega ramped up its production to fulfill the overwhelming amount of orders and given the higher economies of scale, lower raw material prices and lower upkeep charges, EBITDA margins grew by 9.2ppts to 33.4%. EBITDA wise, Hartalega registered a 98.3% growth to RM307.5m.
  • Expansion plans. Hartalega has thus far commissioned 8 out of 12 lines in Plant 6 (+4.7bn pcs pa), with the remaining 4 lines to be commissioned gradually in the coming months. Construction works for Plant 7 (+3.4bn pcs pa) that was previously disrupted due to MCO has resumed and the Group targets to commission its 1st line for the plant in 4QCY20. Upon full commissioning of both Plant 6 and Plant 7, Hartalega’s total installed capacity should reach 44.7bn pcs pa by FY22F. As for NGC 2.0 (+32bn pcs pa), Hartalega targets to commission its 1st line by 1QCY22.
  • Catching up on ASP. In terms of ASP, Hartalega is currently lagging its peers as its gloves are currently still priced at c. USD30 per thousand pieces of gloves. In order to catch up to the current market pricing. Hartalega will be raising its ASP by 30% QoQ in 2QFY21 and 3QFY21. With that, we adjust our earnings forecast for FY21-22F by 51-120% to account for the ASP hike in the coming months. We also highlight that the nitrile butadiene prices are expected to trend higher given the tight supply, however, we believe the increase in cost can be sufficiently covered by the rise in ASP

Source: PublicInvest Research - 5 Aug 2020

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