RHB Research raises target price for Hartalega to RM6.05

KUALA LUMPUR (July 5): RHB Research Institute Sdn Bhd has maintained its “Buy” rating on Hartalega Holdings Bhd at RM5.21 with a higher target price of RM6.05 (from RM5.77) and said the target price implies 37x FY20F (Mar) P/E, or +1SD from its 1-year forward P/E.

In a note today, the research house said it expects Hartalega’s FY20F earnings to improve year-on-year due to good demand for nitrile gloves, and the stronger USD.

RHB Research said Hartalega’s share price has declined 28% from its peak of RM7.20 on Aug 28, 2018.

The research house said Hartalega’s forward P/E has declined 12x (or 1.5SD) to 32x forward P/E (or +0.3SD) currently.

“Recall that in the previous earnings down-cycle in 2016, its share price weakened ~30% from its peak, suggesting that the current share price downtrend has ended.

“Hartalega remains focused on the expansion of its NGC. For Plant 5, the company has commissioned all of the targeted 12 lines in May (within its target to complete by end-1H19),” it said.

RHB Research said that as for Plant 6, construction is underway and Hartalega targets to commission the first line in 1H20.

It said its earnings estimates for Hartalega are unchanged.

“We have increased the long-term growth assumption to 3.5% from 3% due to stable demand for gloves on rising health awareness and aging population.

“With the low per capita consumption of gloves in China and India at circa 6 pieces pa (ppa) against developed countries’ more than 200ppa, the opportunity for growth is still good.

“Hartalega is our sector and country Top Pick for its superior profitability (average 5-year NPM of c.16-20% – ahead of peers’ 6-10%), and defensive balance sheet, with net gearing of 9% (peers: 25-80%).

“Hartalega remains our sector and country Top Pick for its superior profitability, and defensive balance sheet,” it said.

At 12.03pm, Hartalega was unchanged at RM5.21 for a market capitalisation of RM17.45 billion.

Source: TheEdgeMarkets