KUALA LUMPUR (Aug 5): Hartalega Holdings Bhd's share price dropped yesterday despite the rubber glove maker releasing record high quarterly profit for the first financial quarter ended June 30, 2020 (1QFY21).

Its net profit more than doubled to RM219.72 million. Quarterly revenue expanded 43.7% year-on-year to RM920.09 million from RM640.1 million.

The group attributed the better earnings in 1QFY21 to higher sales volume, lower raw material and energy cost coupled with the cost control initiative to reduce operating costs.

However, investors expected more as Hartalega's earnings numbers fell short of analysts' bullish forecasts.

Market consensus forecast Hartalega's annual profit to be at RM1.32 billion for the financial year ending March 31, 2021 (FY21). This means Hartalega's 1QFY21 net profit only accounted for 16.6% of the full-year earnings consensus.

In order to meet the market consensus, Hartalega will need to deliver an average of RM368 million for the next three financial quarters.

Malacca Securities Sdn Bhd analyst Kenneth Leong commented that Hartalega's 1QFY21 earnings only came at 19.1%, which were less than a quarter of his full-year earnings forecast of RM1.15 billion.

"[But] we think that earnings will pick up in subsequent quarters owing to the higher average selling prices (ASPs) in recent months, while Plant 6 of Next Generation Complex (NGC) will be in full operation by end of this year [and] will be able to capture the rising demand," he stated.

Post results' announcement, Leong maintains "hold" call for Hartalega. But he said target price is revised upward to RM18.44, from RM18.00 previously following the upward revision of price-earnings ratio (PER) at 55 times versus 53 times earlier, which is in line with the higher +1.0 standard deviation of the five-year historical forward average.

Despite the stellar quarterly results, Hartalega was among the top losers on Bursa Malaysia. Its share price fell 2.73% or 56 sen to RM19.94, valuing the glove maker at RM68.35 billion — the third biggest stock in terms of market capitalisation on Bursa Malaysia.

Malacca Securities' Leong attributed the drop in share price to mild profit-taking activity, as the price managed to come off from its intraday low of RM17.54.

Year-to-date, the stock has soared 263% from RM5.48 on Dec 31, 2019.

Hartalega's share price has exceeded most investment analysts' target prices, except for Kenanga Investment Bank  (RM22.30), RHB Research (RM21.60) and Hong Leong Investment Bank Bhd Research (RM20.12) and CGS-CIMB Research (RM20).

Kenanga IB analyst Raymond Choo, who has "outperform" call for Hartalega, has projected earnings forecasts of RM1.53 billion for FY21 and RM1.79 billion for FY22.

Choo raised his earnings forecasts last month taking into account of higher ASP, which leapt to US$34 per 1,000 pieces annually, from US$30.5 per 1,000 pieces, and assuming higher earnings before interest, taxes, depreciation and amortisation margin of 39%, compared with 38%.

Similarly, PublicInvest Research analyst Chua Siu Li upgrades the earnings estimates for Hartalega by 35% to 124% for FY21 and FY22 to account for the higher ASP assumption as well as operational efficiency.

As such, Chua is projecting the group to deliver net profits of RM1.37 billion for FY21 and RM853.3 million for FY22, according to the research note dated June 26.

Chua's target price of RM11.10, however, was one of the lowest among the research house analysts with a "neutral" call for the stock.