FY20 PATAMI of RM435m (-5% YoY) came in at 89%/96% of our/consensus full-year forecasts, missing ours. However, looking ahead, the current acute tight supply situation with buyers aggressively acquiring and stockpiling critical medical supplies of which gloves is one, is expected to push up ASP. We stay bullish despite the stock having already appreciated 66% YTD. TP kept at RM11.66. Reiterate OP.

FY20 PATAMI of RM435m (-5% YoY) came in at 89%/96% of our/consensus full-year forecasts, missing our expectation. A 3rd interim DPS of 2.1 sen was declared bringing FY20 DPS to 5.7 sen which is in line with our expectation. However, we expect final dividend to be announced in 2H 2020.

QoQ, 4QFY20 revenue fell 2%, no thanks to a lower ASP (-2%) and a flat sales volume (+0%) as utilisation hit 96% (3QFY20 also at 96%). EBITDA margin expanded by 3.2ppt from 23.3% to 26.5% due to lower raw material and energy cost. Due to net foreign exchange loss of RM36.5m, 4QFY20 PATAMI fell 5% to RM116m.

YoY, FY20 revenue rose 3% due to higher volume sales (+9%), offsetting lower ASPs (-5%). This brings FY20 PATAMI to RM435m (- 5% YoY), dragged down by a higher effective tax rate of 2.1.6% compared to 17.4% in FY19.

Consensus under-appreciating higher ASPs’ impact. We highlight that market consensus is under-appreciating the potential impact from higher-than-expected ASPs in this continuing pandemic and tight supply condition. Due to the tight supply, we expect buyers to more aggressively secure allocations which will push up ASPs. Longer delivery lead times are indicating that demand will outstrip supply at least over the medium-term. We believe HARTA will benefit from the robust demand which has led to industry longer delivery lead times which has risen to an average of between 120 to 150 days as compared to 40 to 50 days normally.

Outlook. The first 4 lines of Plant 6 (installed capacity of 4.7b pieces) have commenced commercial operations and the remaining 8 lines are expected to be gradually ramped up. Plant 7 is expected to be commissioned by end 2020, which will focus on small orders as well as specialty products with an installed capacity of 2.4b pieces. All in, Plant 5, 6 and 7 will add a total capacity of 12.1b pieces, raising installed capacity to 43.7b pieces per annum.

Reiterate OP. We stay bullish despite the stock already appreciated 66% YTD. TP is RM11.66 based on 52x CY21E EPS (at slightly >+2.0SD above 5-year historical forward mean). We like HART for: (i) a solid management, (ii) constantly evolving via innovative products development, and (iii) its booming nitrile gloves segment.

Risks to our call. Lower-than-expected ASPs, volume sales and longer-than-expected approval for its anti-microbial gloves.

Source: Kenanga Research - 19 May 2020