This article first appeared in The Edge Financial Daily, on August 8, 2016.

Hartalega Holdings Bhd
(Aug 5, RM4.15)
Maintain buy call with a lower target price (TP) of RM4.63: We hosted a Hartalega Holdings Bhd presentation conducted by its senior management. We were given insight into its recent first quarter ended June 30 earnings as well as key updates on capacity and industry trends.

At present, both plants 1 and 2 of the Next Generation Integrated Glove Manufacturing Complex  (NGC) have started to make positive contributions to group earnings. The company has begun construction of plant 3 and is expecting completion by the third quarter of calendar year 2017 (3QCY17), while plant 4 will begin construction soon after. Each plant will provide additional capacity of 4.7 billion pieces of gloves per annum.

Management has indicated additional costs required in building plants 3 and 4. Hence, we revise our financial year ending March 31, 2017 (FY17) net profit forecast to RM280.3 million, a reduction of 4%, while maintaining FY18’s at RM312 million.

Following the earnings revision, our TP is reduced to RM4.63 from RM4.68 based on a price-earnings ratio of 25 times over its CY17 earnings per share. Its current share price offers a potential upside of more than 10%. Hence, we maintain our “buy” recommendation on Hartalega. — BIMB Securities Research, Aug 5