Hartalega’s 2QFY21 core PATMI of RM547.1m (+143% QoQ, +429% YoY) brought 1HFY21’s sum to RM771.9m (+287% YoY). We deem the results to be in line as we expect stronger results in the coming quarters with improving ASPs. YTD, revenue improved (+67.9% YoY) thanks to higher sales volume (+32% YoY), and ASPs (+26.5% YoY). Currently, Hartalega is running at near full capacity c.98% and maintaining focus on expansion plan to support the increasing gloves demand from Covid-19 pandemic. We maintain our forecasts as results were in line. Reiterate our BUY call with unchanged TP of RM24.10. Our TP is based on FY21 EPS pegged to PE of 41x (1SD above 5 year mean).

Within expectations. 2QFY21 core PATMI of RM547.1m (+143% QoQ, +429% YoY) brought 1HFY21’s sum to RM771.9m (+287% YoY). The results came in at 39% of both ours and consensus’ full year forecast. We deem the results to be line as we expect stronger results in the coming quarters with higher ASPs.

Dividends. Declared first interim dividend of 3.85 sen per share going ex on the 3rd Dec 2020 (1HFY20: 1.8 sen).

QoQ. Revenue boosted (+46.3%) to RM1.35bn mainly due to higher sales volume (+4.4%) and ASPs (+40.6%). EBITDA increased by +136% to RM711.1m whilst margins increased by 20ppts (to 52.8%). This was driven by better production efficiency. Core PATAMI increased to RM547.1m (from RM224.8m, +143%) despite slightly higher effective tax rates of 19.5% (1QFY21: 19%).

YoY. Revenue grew +89.7% thanks to by both increased in sales volume (+26.6%) and ASPs (+49.5%). Utilization rate rose to near full capacity (c.98%) from the humble 86% back in 2QFY20. EBITDA was lifted by +309% while margin increased by 28.3ppts (from 24.5% to 52.8%) mainly due to lower raw material and energy costs, as well as the continuous cost control initiative to reduce operation costs. This was followed by a +429% increase in core PATAMI, with lower effective tax rates of 19.5% compared to 24% in 2QFY20.

YTD. Revenue of RM1.35bn showed an increase of +67.9% YoY essentially aided by higher sales volume (+32% YoY) and ASPs (+26.5% YoY). EBITDA rose by +215% YoY, followed by an increase in core PATAMI by +287% YoY with lower effective tax rates of 19.4% (vs. 23.4% in 1HFY20).

Outlook. Hartalega remains focused on their capacity expansion plans. As per last week, Plant 6 has fully commissioned all 12 production lines. Furthermore Plant 7 is expected to begin commissioning by 4Q of 2020. Its plan on increasing its annual installed capacity from the current 41bn to 44bn pieces by FY22 remains intact. We expect an increase in ASPs in the coming quarters. Additionally, spot orders (c.8% of total sales volume) have been fully taken up until Jul 2021.

Forecast. We Maintain Our Forecasts as We Deem the Results to be in Line.

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

Source: Hong Leong Investment Bank Research - 28 Oct 2020