WHILE the analyst fraternity is still bullish about Hartalega Holdings Bhd’s latest foray to expand its production capacity, they are increasingly concerned with the lofty valuation of the company – or that of other glove makers in general.
Hartalega, whose share price is currently the highest among the Big Four glove makers, announced the purchase of 250-acre of of land in Bukit Kayu Hitam, Kedah for RM228.69 mil, which will be the future site of 16 new plants costing about RM7 bil over the next 20 years (the first plant is set to be completed by 2024).
Even as it retained Hartalega’s rating as “buy”, TA Securities Research slashed the glove maker’s target price by 27.5% to RM17.12 (from RM23.60 previously) “to factor in a more normalised average selling price (ASP)”.
Meanwhile, Malacca Securities Research trimmed Hartalega’s target price by 24% to 15.38% (from RM20.26 previously) as it expects the exponential surge in ASP to taper post-2021.
“Nevertheless, we still favour Hartalega for its strong compliances by boasting MSCI ESG (environmental, social and governance) rating of ‘AA’ – the leader among 93 companies in the healthcare equipment & supplies industry,” justified analyst Kenneth Leong in a company update.
PublicInvest Research adjusted Hartalega’s target price downward by 22.4% to RM19 (from RM24.50 previously), implying a price-to-earnings ratio (PER) multiple of 16 times (at its five-year historical mean).
“We do not deem the expansion plan as overly-aggressive as global glove demand growth has mostly maintained at a rate of 8-10% pre-pandemic,” opined analyst Chua Su Li.
Elsewhere, Kenanga Research lowered Hartalega’s target price by 19% to RM17 (from RM21 previously) as it rolls over its valuation base from CY2021 to CY2022.
“Our target PER is at a 35% discount to normalised five-year pre-COVID historical forward mean averaging 26-28 times,” noted analyst Raymond Choo Ping Khoon.
“From the perspective of a long-term investor, we still see significant value in Malaysian glove players which command 65%-68% of global market share given they have consistently evolve and innovate in terms of products and plant modernisation via automation.”
AmBank Research which has a “hold” rating on Hartalega lowered its target price on the glove maker by 17.4% to RM11.20 (from RM13.56 previously) to reflect a neutral ESG rating of three stars.
“Our valuation is based on 25 times CY2022F EPS which is at a one standard deviation (SD) discount of the five-year historical average,” rationalised the research house.
“This is in view of the faster-than-expected roll-out of global vaccinations as well as rapid capacity expansions by Chinese glove manufacturers.”
At 9.40am, Hartalega was up 10 sen or 1.02% to RM9.89 with 74,100 shares traded, thus valuing the company at RM33.9 bil. – March 11, 2021
