Hartalega has accepted the offer to sell from Kumpulan Tanjung Balai Sdn Bhd for 60.57 acres of land for RM158m. The land is strategically located adjacent to Hartalega’s NGC Sepang, whereby all necessary infrastructures are readily available. We are positive on the acquisition. The land, will be used to build additional glove manufacturing facilities, “NGC 1.5” that will add an installed capacity of 19bn pieces (from 39bn currently). The acquisition will potentially enable Hartalega to increase earnings with the additional capacity. This is in line with the global increase in demand for gloves. On a proforma basis, Hartalega will remain in a net cash position post acquisition of the land. Maintain forecasts. We reiterate our BUY call with unchanged TP of RM24.10. Our TP is derived from FY21 EPS and pegged to PE of 41x (1SD above 5 year mean).

NEWSBREAK

Hartalega announced it has accepted the offer to sell from Kumpulan Tanjung Balai Sdn Bhd for the proposed land of 60.57 acres for a purchase consideration of RM158m.

The land is located in Mukim Labu, Daerah Sepang, Selangor. The 60.57 acres of land is to be subdivided from a piece of leasehold land of 126.07 acres, with lease tenure expiring on 9 Oct 2110.

The deal is subject to the relevant Sale and Purchase Agreement (SPA) which is expected to be executed on or before 21 Aug 2020.

HLIB’s VIEW

Positive on the news. We are positive on the acquisition. This acquisition will potentially enable Hartalega to increase earnings with the planned ramping up of capacity. This is in line with the increasing demand of gloves globally.

Capacity. The land will be used to build additional glove manufacturing facilities, “NGC 1.5” that will increase installed capacity of 19bn pieces annually. Current capacity (as at 1QFY21) stood at 39bn pieces.

Location. The land is strategically located adjacent to Hartalega’s NGC Sepang, whereby all necessary infrastructures are readily available, thereby reducing “set-up” time.

Gearing. Hartalega intends to fund the proposed acquisition via internally generated funds and/or existing credit facilities. On a proforma basis, Hartalega will remain in net cash position post acquisition of the land; net cash (1QFY21) position of RM478.6m would reduce to RM320.6m post acquisition.

Forecast. Maintain, pending completion of the acquisition and more guidance on the new capacity timeline.

Maintain BUY, TP: RM24.10. We maintain our BUY call with unchanged TP of RM24.10. Our TP is derived from FY21 EPS and pegged to PE of 41x (+1SD above 5 year mean

Source: Hong Leong Investment Bank Research - 11 Aug 2020