Journey to Wealth
Hartalega Holdings - 1QFY13 below our estimates
Period 1QFY13
Actual vs. Expectations
The reported net profit of RM53.4m (+6.7% QoQ; -2.6% YoY) came in below our expectations (accounted for 18% of our full year forecast of RM299.6m) but was in line (~24%) with the consensus' estimate.
Dividends No dividends were declared as expected.
Key Results Highlights
QoQ, revenue rose 3% due to a higher ASPs (+6%) in the nitrile glove segment, which was offset by a 3% decrease in the sales volume. 1QFY13 capacity utilisation stood at 90% (vs. 86% in 4Q12, 79% in 1QFY12). Against our expectation, the operating margin improves 2.3 ppts to 28.3% from 26.1%.
However, we reckon that the margin improvement may not be sustainable in the coming quarters as the increase in revenue and profit was also largely due to the strengthening of USD as well (1Q13: RM3.12/USD vs. 4Q12: RM3.06).
YoY, revenue rose 13% due to the increase in volume sales (+12) and ASP (+2%) but net profit declined 2.6% due to competitive sales pricing as well as the recognition of a net loss in foreign exchange and changes in fair value in forward exchange contracts of RM1.3m in the current quarter. Pre-tax profit margin declined 4 ppts (from 32.2% in 1Q12 to 28.2% in 1Q13) and effective tax rate rose to 23.6% (1Q13) from 22.3% (1Q12).
Outlook The new plant namely Plant 6, should start commencing its first line operation in September 2012. The remaining 9 lines are expected to come on-stream by June 2013. With Plant 6 fully operational in FY14, it is expected to boost the production capacity by 30%, translating into a total capacity of 3.5b pieces of gloves p.a.
Change to Forecasts
No changes to our forecasts as we believe the new lines should further boost the sales volume and hence revenue. We have also imputed potential margin squeeze into our forecasts. However, we may fine-tune (lower) our numbers should the utilisation rate be lower than expected after the commencement of the new lines.
Rating Maintaining MARKET PERFORM due to the limited upside from here to our TP.
Valuation We have revised up our TP slightly from RM4.42 to RM4.65, implying 11.5x CY13 PER, which is the 4-year average PER.
Risks (i) Lower utilisation rate (ii) squeeze in margin & (iii) fluctuation in ringgit and commodity prices
Source: Kenanga
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