Results Update

Harta has just announced its results for QE31/3/2010. Its net profit increased by 25% q-o-q or 50% y-o-y to RM46.4 million while turnover increased by 10% q-o-q or 31% y-o-y to RM163 million. It is worth noting that the pre-tax profit & net profit margin inched up to 34.6% & 28.4%, respectively.


Table: Harta's last 8 quarterly results


Chart 1: Harta's last 10 quarterly results

Other announcement

Harta has also announced a Bonus Issue of 1-for-2, which should be well received by retail investors. While not adding value to the stock, bonus issues- like share splits- would make the stock more affordable to retail investors as well as increasing liquidity & depth for the stock. The other rubber glove makers like Topglov & Supermx have also proposed Bonus Issue of 1-for-1 & 1-for-4, respectively.

Valuation

Based on Harta's closing price of RM7.85 yesterday, the stock is now trading at a trailing PER of 13.3 times (based on last 4 qaurters' EPS of 59 sen). This is lower than the PER multiple of 15.5 times currently enjoyed by Topglov (based on its closing price of RM12.26 & last 4 quarters' EPS of 79 sen). I think Harta should not trade at a 14%-discount to Topglov.

Technical Outlook

Harta is still in an uptrend, based on the daily chart below (plotted on log scale). However, bearish divergence in RSI is noted. At the same time, we can see -ve DMI has crossed above the +ve DMI. We will have to wait & see whether the good financial results & the proposed Bonus Issue would give the stock a sufficient boost that could rectify the stalled technical picture.


Chart 2: Harta's daily chart as at May 11, 2010 (Source: Tradesignum)

Conclusion

Based on continued strong financial performance & the proposed Bonus Issue, Harta is rated a HOLD.