AmWatch - Hartalega Holdings : Entering a new growth phase BUY, 6 May 2015

STOCK FOCUS OF THE DAY

Hartalega Holdings : Entering a new growth phase            BUY

We reiterate BUY on Hartalega Holdings with an unchanged fair value of RM9.40/share. We continue to peg our valuation to a fully-diluted FY16F PE of 27x.

Hartalega reported earnings of RM55mil (QoQ: +11%) in 4QFY15 to wrap up its FY15 with a net profit of RM210mil (YoY: -10%). This was in line with our and consensus estimates, accounting for 99% and 97%, respectively.

It declared a 3rd single-tier interim dividend of 3 sen/share, bringing the total thus far for FY15 to 9 sen/share. We expect a 4 sen/share final dividend to be announced during its AGM in August. Yields are at ~2%.

Its EBITDA margin was lower by 2ppts QoQ and 4ppts YoY. This is however, still 7-8ppts above its peers’. Hartalega’s earnings would have declined QoQ were it not for its much lower effective tax rate of 18% in 4QFY15.

Given the availability of new capacity from NGC, the group has decided to decommission its 10 lines (600mil installed capacity) at Plant 1 at Batang Berjuntai (RM3.1mil write-off booked in 4QFY15) and convert the site into a warehouse. The plant was mainly involved in the latex gloves production.

No change to our FY16F-FY17F earnings estimates for now. We maintain our view that the progressive commissioning of NGC will provide fresh growth impetus to the stock.

We believe that the imminent US rate hike will continue to exert further downward pressure on the RM. As such, we expect valuations of the rubber glove players to remain inflated as investors seek a safe haven from the weakening RM and other GST-affected industries. The stock is currently trading at a fully-diluted FY16F PE of 23x.

Others :

Malaysia Airports Holdings : Earnings dragged by ISG and klia2 costs         HOLD

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CB Industrial : Receives RM74.9mil contract         HOLD

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DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.