PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 17 Sep 2021, 10:27 AM



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Hartalega’s 1QFY22 net profit grew by 102% QoQ to RM2.26bn, predominantly due to higher sales volume and ASP. The results came in above both our and consensus estimates at 53% and 59% respectively. We still deem Hartalega’s performance in line with our projections, as we are expecting weaker quarters ahead, reflecting the effects of a downward revision in glove pricing. Note that management is also expecting a 30% QoQ decline in ASP in 2QFY22. We lower our earnings forecast for FY22- 24F by 2-22%, as the ASPs are declining at a faster-than-expected pace. Our TP is subsequently lowered to RM7.80, implying a PE multiple of 26x (at its pre-Covid 5-year historical mean) on its CY23F EPS of 30.5sen per share. We maintain our Outperform rating on Hartalega, as we continue to like Hartalega for its superior margins during pre-pandemic times.

  • Solid ASPs and sales volume. Hartalega’s 1QFY22 revenue grew by 69% QoQ to RM3.9bn, on the back of stronger sales volume (+51% QoQ) and higher ASP (+13% QoQ). The strong growth in sales volume was mainly due to a low base effect, as Hartalega temporarily halted its operations in 4QFY22 to curb the spread of COVID-19 in its plants. The lack of shipment availability in 4QFY21 has also led to shipments being delayed to 1QFY22, resulting in the higher sales volume recorded. Stripping out the effects of shipment delay in 4QFY21, its utilization rate also recovered to 88%, as opposed to 64% in 4QFY21. Net profit also grew in tandem with its revenue, up by 102% QoQ to a new record high of RM2.26bn.
  • Expansion plans. Since the start of its commissioning, Hartalega’s Plant 7 (+3.4bn pcs pa) has commissioned a total of 8 lines thus far, while the remaining 2 surgical glove production lines is expected to come on stream in the coming quarters. With the ongoing movement restrictions, the commissioning of NGC 1.5’s 1st line has also been delayed and is expecting to start in January CY22.
  • Outlook. Moving into 2HCY22, management is of the view that glove ASPs will gradually decline and is expecting a 30% QoQ drop in 2QFY22. Besides that, the 60% workforce ruling implemented by MITI is also expected to continue capping utilization rate at c.70%. Glove buyers have resorted to source part of its supplies from China, in a bid to mitigate supply risk as the limited workforce has prohibited the local glove makers from fulfilling all orders on a timely basis.

Source: PublicInvest Research - 4 Aug 2021

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