- We reaffirm our HOLD recommendation on Hartalega Holdings with an unchanged fair value of RM5.00/share. This is based on a PE of 15x fully-diluted FY14F EPS.

- Hartalega reported earnings of RM62mil in 4QFY13 (+3% QoQ) to end the year with a net profit of RM235mil (+17% YoY). The results were within our, and market, estimates.

- The solid performance can be attributed to:- (1) favourable input prices (nitrile prices were down 24% YoY); (2) robust glove sales volume (+23% YoY) in view of lower ASP; and (3) the marginal strengthening of USD against RM (from RM3.06/USD in FY12 to RM3.09/USD in FY13).

- In FY13, Hartalega was able to capitalise on the strong global glove demand (2012: +10%) following the progressive commissioning of Plant 6 at end-September 2012 (+440mil pcs) and improvement in the line speeds of its older plants (+1.3bil pcs). We understand that all 10 lines of Plant 6 will be commissioned by July 2013, lifting the group’s annual installed capacity by 27% to 14bil pcs.

- The group’s turnover crossed the one billion mark for the first time, climbing 11% YoY as a 24% rise in sales volume outweighed a 7% slide in ASP. QoQ, revenue rose 4%.

- The fall in ASP during the year from RM106/1,000 pcs in 1QFY13 to RM98/1,000 pcs in 4QFY13 was due to the decline in input costs as well as intensifying price competition in the nitrile segment. Note that the drop would have been greater if not for a 2%-3% hike in prices in the final quarter to offset the effects of the minimum wage policy.

- Looking ahead, we expect Hartalega’s net profit growth to slow down in the next 2 years (FY14F: +15% and FY15F: +7%) before picking up again in FY16F (+22%) capped by delays in its capacity expansion plans and a more hostile pricingenvironment.

- In-line with its greater bottom line growth, Hartalega’s EBITDA margin expanded 1.8ppts YoY to 33%. We believe this was the result of the group’s more efficient production, more than the intrinsic pricing advantage of nitrile against latex (average discount of 10%).

- The company declared a third interim dividend of 3.5 sen/share, bringing total gross dividends announced for FY13 to 10.5 sen/share. We expect a 4 sen final dividend to be announced in August. Yields ahead remain decent at ~3%.

- In the near term, we believe news flow on the H7N9 bird flu outbreak will continue to be a catalyst for the rubber glove counters. Management has indicated that it would be able to ramp up its utilisation rate to 95% from 90% currently to produce an additional 500mil pcs should there be a surge in demand.

Source: AmeSecurities