- We reiterate our BUY recommendation on Hartalega Holdings with an unchanged fair value of RM9.40/share. We continue to peg our valuation to a fully-diluted FY16F PE of 27x.

- Hartalega reported earnings of RM55mil (QoQ: +11%) in 4QFY15 to wrap up its FY15 with a net profit of RM210mil (YoY: -10%). This was in line with our and consensus estimates, accounting for 99% and 97%, respectively.

- The group also declared a third single-tier interim dividend of 3 sen/share, bringing its total dividend for FY15 thus far to 9 sen/share. We expect a 4 sen/share final dividend to be announced during its AGM in August. Yields are ~2%.

- Hartalega’s revenue had improved by 6.5% QoQ thanks to higher sales volumes (+9%). This follows the maiden contribution from its NGC project as well as an improvement in its ASP (QoQ: +4%) in tandem with the rising USD (+8% QoQ against the RM). In 4QFY15, six lines at NGC were commissioned, which adds 180mil pcs to the group’s FY15 output. This translated to incremental revenues of ~RM16mil.

- YoY, revenues were higher by a smaller 3.5% as the 9% increase in volumes was offset by the 4% decline in ASP in view of competitive pressure and softer raw material prices.

- Hartalega’s operating expenses rose by 10% both QoQ and YoY, resulting in losses at the pre-tax level. Factors cited for the rise include an increase in maintenance, packaging, and start-up costs for its NGC.

- Its EBITDA margin was lower by 2ppts QoQ and 4ppts YoY. This is however, still 7-8ppts above its peers’. Hartalega’s earnings would have declined QoQ were it not for its much lower effective tax rate of 18% in 4QFY15.

- Given the availability of new capacity from NGC, the group has decided to decommission its 10 lines (600mil installed capacity) at Plant 1 at Batang Berjuntai (RM3.1mil write-off booked in 4QFY15) and convert the site into a warehouse. The plant was mainly involved in the latex gloves production.

- On a side note, trading of Hartalega’s warrants will be suspended on 14 May and delisted on 1 June following the expiry on 29 May. As of 23 April, 22% of the 74.3mil warrants (exercise price: RM4.14) have yet to be converted.

- No change to our FY16F-FY17F earnings estimates for now. We maintain our view that the progressive commissioning of NGC will provide fresh growth impetus to the stock.

- We believe that the imminent US rate hike will continue to exert further downward pressure on the RM. As such, we expect valuations of the rubber glove players to remain inflated as investors seek a safe haven from the weakening RM and other GST-affected industries. The stock is currently trading at a fully-diluted FY16F PE of 23x.

Source: AmeSecurities Research - 6 May 2015