• Hartalega posted a good set of results with revenue and PATMI for FY18 growing by 32% and 55.3% yoy respectively.
• The strong FY18 performance was due to robust glove demand leading to higher sales volume (+32.5% yoy) as well as increased production especially from NGC plant 3 and 4.
• Maintain Hold recommendation with a TP of RM5.50 based on PER 34x (+1SD above 3-year historical mean) on CY19 EPS.

Stronger FY18 results

Hartalega posted an impressive FY18 results, as revenue and PATMI grew to RM2.4bn (+32% yoy) and RM439.4m (+55.3% yoy) respectively. The results were in-line with our full year earnings forecast at 98.7%. The good set of results were driven by a 32.5% yoy sales volume growth, mainly due to strong demand growth for nitrile gloves, additional production capacity in NGC with higher average utilization rate of 91% (vs FY17:87%). Additionally, improvements in operating efficiencies and net forex gains of RM41.4m have resulted in higher PATMI and margin of 18.3% (+2.8ppts).

Improved qoq performance

PATMI increased by 3.2% qoq mainly due to higher sales volume (+3.7%) despite lower ASP (-0.7%) and lower effective tax rate due to the utilisation of tax incentives in some of local subsidiaries.

Outlook remains positive moving forward

We expect Hartalega outlook to remain strong on the back of robust global demand for nitrile gloves, as well as its strategic expansion plans and product innovation. Hartalega’s NGC is on-schedule to meet this rising demand with the commissioning of all 12 lines in Plant 4 and Plant 5 which will commence from July 2018. Coupled with higher efficiencies and more automation from NGC plant we expect Hartalega to continue to deliver stronger FY19 growth. Additionally, the group will launch its antimicrobial gloves (AMG) in Europe on 31st May 2018 and is working on FDA approval to enter the US market.

Dividend declared

Third interim DPS of 2 sen was declared and payable on June 27. This brings current total DPS for FYE March 2018 (FY18) to 5.75 sen. We expect FYE19 DPS of 8 sen, translating into divided yield of 1.3%.

Hold recommendation with TP of RM5.50

We maintain our TP of RM5.50 based on 34x PER (+1SD above 3-years historical mean) on CY19 EPS. The premium valuations can be justified by its leadership position in nitrile glove, strong operating efficiencies and higher margin compare to its peers. While we are confident in Hartalega’s good earnings prospect, we believe this has been largely priced in. Maintain Hold.

Source: BIMB Securities Research - 16 May 2018