Hartalega’s core earnings of MYR235m were largely in line with our and consensus forecasts. The group’s commendable  results  were  mainly due  to  higher sales  volume,  consistent  increase in  production capacity as  well  as  easing  raw  material  prices.  Following  an  internal  coverage reallocation, we had revamped our financial model. We are now calling a BUY call on the stock, with a MYR6.26 FV, pegged to a 17x FY14 P/E.

- In  line.  Hartalega’s  FY13  results  were  within  our  and  consensus expectations,  making  up  96%  and  102%  of  the  full-year  forecasts respectively.  Revenue  rose  3.9%  q-o-q  and  10.8%  y-o-y,  boosted  by higher  sales  volume  and  an  expansion  in  production  capacity.  Overall, the  company  recorded  a  healthy  2.9%  increase  in  net  profit  q-o-q  and 16.6%  y-o-y,  propelled  by  rising  sales  volume  in  tandem  with  the increase  in  production  capacity  at  Plant  6.  On  a  quarterly  basis,  the company’s  4QFY13  results  were  up  marginally  in  general  owing  to easing  prices  of  raw  material  such  as  natural  latex  and  nitrile,  but  this was  offset  by  price  competition.  The  company  has  declared  a  third interim tax exempt DPS of 3.5 sen, bringing its YTD net DPS to 10.5 sen.

- Plant 6 well on track. Hartalega’s Plant 6, on which construction began in  Feb  2012,  is  making  good  progress,  with  seven  out  of  the  10 production  lines  having  commenced  operations.  Upon  full  completion  in July this year, we expect the company’s overall production capacity to go up by 3.0bn pieces annually to 14bn pieces a year. 

- BUY.  Following  an  internal  coverage  reallocation,  we  revamped  our financial model and revised our assumptions. We are now forecasting net profits of MYR267.9m and MYR295.3m for FY14 and FY15 respectively. From  these  numbers,  we  derive  a  new  FV  of  MYR6.26  for  Hartalega, pegged  to  a  17x  FY14  P/E.  We  believe  that  the  company  could potentially  generate  robust  earnings  in  the  upcoming  quarters,  although there is a risk of margins being compressed as the pricing of nitrile gloves gets  competitive.  All  said,  we  now  have  a  BUY  recommendation  on  the stock.

Source: RHB