Hartalega Holdings; Hold; RM7.90
Fair Value: RM7.70; HART MK

Hartalega is embarking on a massive project ' it is planning to build the 'Next Generation Integrated Glove Manufacturing Complex' (NGC) which will house 70 new high tech production lines, costing RM1.5bn. The project will be spread over two phases and is scheduled to begin in 2013 and complete in 2021. The NGC was accorded the EPP (Entry Point Project) status under the Malaysian Government's Economic Transformation Programme due to its high economic impact. The NGC will be built on a new site of about 100 acres. The first phase will be between 2013 and 2017, where 40 production lines with total annual capacity of 14 billion will be installed. The second phase, from 2017 to 2021, will see the commissioning of 30 production lines with total annual capacity of 10.5 billion gloves. On completion, the total installed production capacity including the current factories in Bestari Jaya will be 38 billion pieces per annum.

The proposed NGC signifies Hartalega's long term value proposition to investors and entrenches its position as the leading producer of nitrile gloves. The total RM1.5bn capex will be spent over the project period of 8 years and implies annual capex of RM190m which approximates the cost of building one factory with 10 production lines. Currently, we estimate annual operating cashflow of between RM234m-RM265m in FY12- 14 (before NGC), which should be able to fund bulk of the capex. As of Dec-11, Hartalega was in net cash position (of RM136m). No change to our forecasts at this juncture. Maintain Hold and RM7.70 TP.

Source: HwangDBS Research - 9 April 2012