Investment Highlights

• We maintain our HOLD call on Hartalega Holdings (Hartalega) with an unchanged fair value of RM6.00. We have imputed a 3% premium for an ESG rating of four stars. Our valuation is based on a PER of 18x FY23F.

• Minimal impact from recent floods. We gather that some of Hartalega’s staff were affected and hence could not come to work for several days. However, there is no impact on the glove producing facility.

• To ensure long-term growth, Hartalega is currently expanding its Plant 7 although the speed of expansion has slowed down. As of end-September 2021, Hartalega has commissioned 8 out of 10 lines in Plant 7. This has increased its total capacity to 44bil pieces per annum.

• Hartalega is expected to release its 3QFY22 earnings in the first half of February. Due to the ongoing trend of lower ASP for gloves, we expect 3QFY22 earnings to be weaker QoQ. However, its balance sheet should remain strong with a solid net cash position.

• On its utilization rate, we expect it to be in the range of 60– 70% in view of the high supply that has been entering the market in the past one year. On the positive side, this also means that there is no shortage of foreign workers in the next 6–12 months for the company.

• Despite the surge of Covid-19 cases globally due to the Omicron variant, we understand that the ASP for gloves is still on a downtrend as the market has been flooded with a high supply of gloves in 2021.

• Earnings estimates maintained. We make no changes to our FY22F, FY23F and FY24F earnings estimates of RM4.15bil, RM1.11bil and RM904mil respectively.

• Maintain HOLD. We believe that the upside is capped as the ASP downtrend continues. Having said that, the downside is also limited as its share price has fallen to around the pre-pandemic level of RM5.92, which was last recorded on 31 Jan 2020.

• Overall ESG score of 4 stars is retained. The company outperforms in the areas of occupational safety and health, employee training and wellbeing, volunteering and charitable giving and accessibility & transparency.

Source: AmInvest Research - 21 Jan 2022