HARTALEGA Holdings Bhd’s RM1 bil net profit feat for its 3Q FY2021 ended Dec 31, 2021 has received mixed review by market analysts.
JF Apex Securities Research said the glove maker’s 9M FY2021’s net profit of RM1.8 bil exceeds its in-house estimate which accounts for 84.5% of full year net profit forecast but below market expectations (69%).
Nevertheless, the research house maintained its “hold” rating on Hartalega with a lower target price of RM14.70 (from RM16.02 previously) as it assigns lower price-to-earnings ratio (P/E) of 30 times CY2021 in view of the window of opportunity is getting slimmer upon widely adoption of COVID-19 vaccines as well as incoming competition from new entrants which could pose a threat to the company’s average selling price (ASP).
“Our valuation was lower than the average five-year mean P/E of 42.3 times,” justified analyst Nursuhaiza Hashim in a result review.
“We peg our valuation to CY2021 instead of FY2021 considering the impact of earnings normalisation in FY2022F after an exceptional strong profit growth in FY2021F pursuant to the pandemic.”
She added: “Market is forward looking, hence we opine that the current share price is looking beyond its prevailing peak earnings and (will) start to price in recovery theme for this year upon massive vaccination.”
Meanwhile, Kenanga Research maintained its “outperform” call on Hartalega with an unchanged target price of RM21 based on 15.5 times CY2021E earnings per share (EPS).
“We lowered our PER rating marginally as we believe valuations are already pegged to super-normal earnings, hence a moderation in earnings momentum beyond this phase should be factored in,” noted analyst Raymond Choo Ping Khoon.
According to the research house, it likes Hartalega for (i) its solid management; (ii) constant evolution via innovative product developments; and (iii) that the counter is currently trading at nine times FY2022E P/E and offering 7% dividend yield.
Nevertheless, Kenanga Research cautioned that the 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,” added the research house.
At the close of yesterday’s trading, Hartalega was up 68 sen or 5.52% to RM13 with 9.96 million shares traded, thus valuing the company at RM44.43 bil. – Jan 26, 2021
