Investment Highlights

• We maintain our HOLD recommendation on Hartalega Holdings (Hartalega) with a higher fair value of RM18.74 (previously RM18.58). Our valuation is based on 45x CY21F EPS.

• Hartalega has announced that its wholly-owned subsidiary, Hartalega NGC Sdn Bhd (HNGC) is acquiring a sub-divisional portion of land measuring 60.57 acres (approx. 245,118 sq. metres) in Sepang, Selangor for a purchase consideration of RM158.3mil.

• The land is located adjacent to the existing NGC Sepang, where all necessary infrastructure is readily available. Additional glove manufacturing facilities (NGC 1.5) will be built to increase installed capacity by 19 billion pieces per annum.

• NGC 1.5 will comprise four plants with 48 lines in total (roughly 396K pieces of gloves per annum per line).

• We believe that the purchase price of RM60 psf is fair when compared with the price of industrial land of similar size in Selangor. Hartalega’s previous land purchase in March 2020 was also at the approximate rate of RM60 psf.

• We are positive on this development as it would allow the group to take advantage of the surge in demand due to Covid-19 pandemic.

• As all necessary infrastructure is already available, we believe that the first line could be completed as quickly as within 9 months (2QCY2021).

• We have raised our earnings forecast by 3.7% for FY22F and 12.9% for FY23F to reflect the latest expansion plans. We assume a total capacity of around 45.5bil pieces per annum by end-2021 and 53.6bil pieces per annum by end-2022. However, we may adjust our earnings forecasts pending further details on expansion timeline from management.

• We continue to like Hartalega for its long-term prospects, underpinned by capacity expansion, product innovation and superior operating efficiencies. We believe the group will benefit from the Covid-19 pandemic as demand for gloves outstrips supply. However, we believe that the stock is fully valued with a P/E of 50x FY22F EPS.

Source: AmInvest Research - 11 Aug 2020