Results

• FY15 revenue of RM1.15bn was translated into core net profit of RM213.6m (-11.4% yoy). This came in within ours and consensus expectations, which accounted for 99.5% and 98.6% of HLIB and consensus full year estimates, respectively.

Deviations

• Largely in-line.

Dividends

• Declared thi rd interim dividend of 3.0 sen per share, bringing the full year dividend to 9.0 sen.

Highlights

• FY15 revenue experienced an improvement of +3.5% yoy mainly attributed to higher sales volume (+4.9%). Strengthening of USD against greenback has mitigated the impact of lower ASP from declining raw material prices and also competitive selling environment.

• NGC has made its maiden contribution – sold about 180m pcs in FY15 – and sequentially sales improved from RM286m in 3Q15 to RM305m in 4Q15.

• FY15 EBITDA margin shrink to 28.1% from 31.9% in the previous year, largely due to NCG start-up cost, increase in maintenance and also natural gas cost.

• Since commissioning in January 2015, NGC currently has 8 lines and two lines will be added progressively each month. Hartalega al ready decommissioned 10 lines in Plant 1, bringing total production lines to 55 as at March 15.

• Management hinted that CAPEX will continue to be high for the next three as they are expediting commissioning of the plants in three phases. CAPEX and depreciation for FY15 was RM417m and RM45.8m respectively.

• Management also shared that there is no oversupply concern and current envi ronment remains favourable for rubber glove producers.

Risks

• Further reduction in ASP amid steep competition.
• Surge in nitrile and latex prices.
• Shift in demand from nitrile gloves to natural latex gloves, if prices of natural latex fall significantly below that of nitrile.
• Depreciation of USD vs. MYR.

Forecasts

• Unchanged.

Rating

HOLD , TP: RM8.45

Positives

• Leader in nitrile glove market; highest ROE and net profit margins; most efficient and profitable glove maker; and appreciation of USD. In the event of a price war, Hart alega’s earnings will be the l east affected, shielded by its high profit margins.

Negatives

• Possibility of increased competition in nitrile glove market.

Valuation

Reiterate HOLD on the back of unchanged TP of RM8.45.

• Our valuation is pegged to an unchanged multiple of 18.4x of CY16 EPS, based on 1SD above 5-year historical average P/E (see Figure #6).

Source: Hong Leong Investment Bank Research - 6 May 2015