9MFY21 PATAMI of RM1,766m (+453% YoY) came in at 61%/69% of our/consensus full-year forecasts. We consider the results to be above expectations as impact from higherthan-expected ASPs will continue to be felt in 4QFY21. We raise our FY21E net profit by 13% after hiking our ASP from USD50/1,000 pieces to USD55/1,000 pieces. Our FY22E ASP assumption remains pegged at USD65/1,000 pieces. However, we maintain our TP of RM21.00 based on 15.5x CY21E raised EPS of 136.1 sen (at close to -1.0SD below 5-year historical forward mean). We lowered our target PER marginally as we believe that its earnings growth will moderate towards more sustainable levels beyond FY21.

Results’ review. QoQ, 3QFY21 revenue rose 58%, thanks to higher ASP (+58%). Correspondingly, EBITDA margin expanded by 9ppt from 53% to 62% due to higher ASP. This brings 3QFY21 PATAMI to RM1,001m (+84%). A second interim DPS of 9.65 sen was declared, bringing 9MFY21 DPS to 13.5 sen which is within our expectation.

YoY, 9MFY21 revenue rose 104% due to higher volume sales (+25%), and ASP (+64%). Correspondingly, EBITDA margin expanded by 29ppt to 53% from 24% due to higher ASP and lower energy and upkeep expenses. This brings 9MFY21 PATAMI to RM1,766m (+453% YoY).

Outlook. To date, all 12 lines of Plant 6 (installed capacity of 4.7b pieces) have commenced commercial operations. Plant 7 commissioned 4 lines with 2 more expected to be commissioned by March 2021 and the remaining 4 surgical lines to commission in the coming quarters. With the progressive commissioning of Plant 6 and 7, the group’s annual installed capacity is expected to increase from current 39bn to 44bn pieces by FY22. Beyond plant 7, NGC 1.5 is expected to have four plants built with an estimated capacity of 19b pieces and construction is expected to start some time in 2021. NGC 2 is expected to have 82 new production lines with a capacity of 32.3b pieces which we believe would be mostly for nitrile gloves and expected to start in 1Q 2022.

Raised FY21E net profit by 13% after hiking our ASP from USD50/1,000 pieces to USD55/1,000 pieces. Our FY22E ASP assumption remains pegged at USD65/1,000 pieces.

Reiterate OP. We maintain our TP of RM21.00 based on 15.5x CY21E EPS (close to -1.0SD below 5-year historical forward mean). We lowered our PER rating marginally as we believe valuations are already pegged to super-normal earnings; hence, moderation in earnings momentum beyond this phase should be factored in. We like HART for: (i) its solid management, (ii) constantly evolving via innovative product developments, and (iii) currently trading at 9x FY22E PER and offering 7% dividend yield. We note that current high ASP momentum will likely wane in the longer term.

Risks to our call include: (i) lower ASP occurring sooner than expected since it is likely to be unsustainable in the long term, and (ii) faster-than-expected vaccine roll-outs.

Source: Kenanga Research - 26 Jan 2021