Tactical downgrade. Hartalega is buying a 112-acre land to boost its capacity to 38b pcs p.a. by FY22 (+3.8x from now). We think this is a long-term assertive move which will see Hartalega gaining a strong foothold in the nitrile market and forcing some of its peers out of business. Our FY13-14 EPS forecasts are however lowered by 7% p.a. as we revise our assumptions on sales growth and margins. Our new target price, based on unchanged 13x CY13 PER, is RM8.50 (-7%). In view of the narrowed upside, we downgrade the stock to Hold.

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Source: Maybank Research - 9 April 2012