BUOYED by prospects of a 50% quarter-on-quarter (qoq) average selling price (ASP) increase, RHB Research has maintained both its “buy” rating and target price of RM23.50 for one of the Big Four glove makers, Hartalega Holdings Bhd.
The only irony for a potential investor is that the target price tag is a distant 47.2% from Hartalega’s current stock price in the RM12.40 region albeit the research house has justified its discounted cash flow (DCF)-derived target price as “90% upside with circa 5% FY 2022F (March) yield”.
“We expect Hartalega’s 3Q FY2021 earnings to surge 643% year-on-year (yoy) and 65% quarter-on-quarter (qoq) to RM900 mil,” projected analyst Alan Lim in a company update. “This should be a new record high for the company.”
Expecting Hartalega to release its 3Q FY2021 earnings over the next two to four weeks, RHB Research noted the glove maker’s ASP could touch circa US$50.00/box of 1,000 pieces of gloves in 3Q FY2021.
“This is consistent with the rate of increase in the market price,” justified Lim. “Recall that Top Glove (Corp Bhd) guided for a 30% qoq ASP increase for the quarter of December 2020 to February 2021.”
As Hartalega’s ASP comes from low base of US$33.80/ box in 2Q FY2021, the magnitude of increase is likely to be higher, he added.
Elsewhere, RHB Research placed Hartalega as its top achiever in its ESG (environment, social and corporate governance) score among glove makers.
The research house assigned an ESG score of 3.11 which it deemed as the highest among glove makers under its coverage. “In our view, Hartalega outperforms in the social element of ESG against other glove makers due to its exceptionally low COVID-19 infection rate,” justified the research house.
“In the short term, we expect a superb 3Q FY2021 in terms of net profit,” noted RHB Research. “Beyond that, Hartalega offers the best operational stability due to its gold standard in COVID-19 prevention.”
Despite the bullishness, investors are reminded of risks in the likes of worse-than-expected glove demand after the COVID-19 pandemic ends, lower-than-expected sales volume/US$, and higher-than-estimated raw material prices.
At 10.40am, Hartalega was up 10 sen or 0.81% at RM12.46 with 655,700 shares traded, thus valuing the company at RM42.71 bil. – Jan 19, 2021
