Hartalega  will  start  constructing  its  next-generation  integrated  glove complex  (NGC)  in  Aug  2014,  which  will  boost  its  annual  production capacity  to  43bn  pieces  by  2020.  We  are  positive  on  its  new  product, Coats,  which  could  potentially  create  a  new  market  niche.  Maintain BUY,  with  our  FV  now  at  MYR7.95  (from  MYR8.04),  pegged  to  an unchanged FY15F P/E of 20x.

- Boosting  production  capacity  to  43bn  pieces  by  2020.  We  expect Hartalega  to  remain  a  major player  in  nitrile  gloves,  as  it  ramps  up its expansion with its upcoming NGC to boost the group’s  installed capacity to 43bn pieces by 2020 from 14bn currently.  Construction of the NGC’s first  line  (of  72)  is  slated  to  commence  in  August  2014.  The  complex, which  will  take  eight years  to build,  will comprise six  new plants  with  a combined annual installed capacity of 29bn pieces.

- Revising  forecasts.  We  are  revisiting  our  model  and  revising  our currency assumptions. We also raise our USD/MYR forecast for 2013-14 to MYR3.20 (from MYR3.10), factoring in higher logistics costs stemming from the recent petrol price  hike. We are now  projecting  a  net profit  of MYR270.2m for FY14F  (from  MYR267.8m)  and MYR289.1m for FY15F (from MYR292.3m) 

- New market niche.  Management recently invested MYR7m  in  its latest patented  product  –  oatmeal  gloves  called  Coats  –  targeting  use  in medical  examinations.  We  believe  that  the  new  gloves  may  potentially carve  a new market niche  in  the cosmetics and beauty industry  as well. Note  that  while  we  are  positive  on  this  development,  we  have  yet  to factor in the potential earnings accretion for this new segment. 

- Maintain  BUY.  We  are positive  on  the  progress  of plans  for  the  NGC and  continue  to  like  Hartalega’s  leading  technological  and  automation processes.  We are pegging the stock to  a 20.0x FY15F  P/E,  compared to its 5-year historical average of 18.0x, to derive a FV of MYR7.95 (from MYR8.01). We also maintain our BUY call.

Source: RHB