Research houses retain ‘buy’ call on Hartalega but trim target price

CGS-CIMB Research has slashed its target price of Hartalega Holdings Bhd by a hefty 85% to RM11.80 (from RM21.80 previously) but maintained its “add” rating in tandem with a cut on the company’s earnings per share (EPS).

With what it deemed as weaker-than-expected 4Q FY3/2021 results, the research house has lowered its FY2022-2023F EPS of Hartalega by 4.4-6.2%.

“This is to account for (i) higher tax rates, and (ii) increase in operating expenses (including higher shipping costs),” justified analyst Walter Aw in a results review.

“We also introduce our FY2024F EPS estimates. Our current FY2022F/2023F/2024F ASP estimates (per 1,000 glove pieces) are US$54.60/US$38.70/US$29.60.” Despite Hartalega having posed a 11% quarter-on-quarter (qoq) rise in its 4Q FY3/2021 net profit, CGS-CIMB Research reckoned that this was below expectations (85% of its and 95% of Bloomberg’s FY2021 estimates).

“The 4QFY21 earnings miss was due to lower-than-expected sales volume (-29% qoq; -20% year-on-year [yoy]) due to (i) a temporary shutdown of certain production lines (due to COVID-19 outbreak), and (ii) less shipment availability from container shortages,” noted the research house.

All-in-all, CGS-CIMB opined that basing its target price on Hartalega’s CY2023F’s EPS will better reflect a more balanced supply-demand environment as it expects a more normalised ASPs from 2023F onwards given ASPs in 2022F should remain elevated.

Meanwhile, Kenanga Research has also revised downward Hartalega’s target price to RM16 (from RM17 previously) as the glove maker’s FY3/2021 PATAMI (profit after taxation and minority interests) of RM2.89 mil (+565% yoy) came in below expectations at 88%/94% of its/consensus full-year forecasts due to lower-than-expected volume sales arising from global container shortages.

“We (thus) lower our FY2022E net profit by 12% after conservatively lowering our ASP from US$65/1,000 pieces to US$62/1,000 pieces,” projected analyst Raymond Choo Ping Khoon. “Our FY2023E ASP assumption remains pegged at US$40/1,000 pieces.”

At 9.31am, Hartalega was up 6 sen or 0.6% to RM9.99 with 806,900 shares traded, thus valuing the company at RM34.24 bil. – May 5, 2021

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