BIMB SECURITIES RESEARCH

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MARKET INSIGHT
PP16795/03/2013(031743)

Wednesday, 7 August, 2013

Results Review

1QFY14 Inline

Hartalega Holdings
Another Record Year Profit
15.5 40.4% 5.5% 0.7 50.2% 6.1% 4.9%

Neutral
Price: Target Price:
RM6.79 (+1.8%) RM6.86
Hartalegas 1QFY14 net earnings of RM62.9m was inline with our expectation, making up 24.5% of our full year forecast. 1Q revenue and earnings grew by 12.2% and 17.9% respectively. EBIT margin remains stable given the stabile raw material price. We revised our FY14 and FY15 earnings forecasts upwards and roll-over our valuation to CY14 thus arriving at a new target price of RM6.86 based on CY14 EPS of 38.1sen over its 3-year rolling average PER of 18x. Presently, the share price does not offer much potential upside; hence our NEUTRAL rating. Accumulate on weakness. Flattish QoQ earnings. QoQ revenue and earnings improved by 3.1% and 1.0% as production has reached its optimum capacity during the quarter. EBIT margin remains stable given no fluctuations in latex and nitrle prices. We expect earnings to improve in the next quarter with the contribution of new production lines in plant 6. Revising our forecasts. We increased our FY14 and FY15 net earnings forecasts to RM261.6m (+2.5%) and RM288.3m (+1.1%) respectively by changing our estimates in product mix and raw material price. Balance sheet remains solid with net cash per share of 25sen. View & Valuation. We rolled-over our valuation to CY14 and arrived at a new target price of RM6.86 based on CY14 EPS of 38.1sen over its 3-year rolling average PER of 18x. With limited upside potential, we maintain our NEUTRAL rating on Hartalega. Nonetheless, we believe Hartalega has the strongest fundamentals among all glove companies in Malaysia and recommend investors to accumulate on weakness.
Share Price Chart 7.00 6.50 6.00 5.50 5.00 4.50

Stock Data Bloomberg Ticker Market Cap Issued shares 52-week range (H) 2-week range (L) 3-mth avg daily volume Free Float Shariah Compliant Financial Derivatives

HART MK Altman Z-score 4,928.4 YTD price chg Equity 738.9 YTD KLCI chg 6.85 Beta 4.21 Major Shareholders 796,620 Hartalega Industries 38.8% Franklin Resources Y Budi Tenggara SB HART MK Equity Share Performance (%) 1mth 3mth Absolute 2.8 26.6 vs. KLCI 37.9 23.8 Consensus Net Profit EPS (sen) Historical Price Ratio (x) Price Earnings Price to Book Financial Highlights FYE 31 Mar Turnover (RMm) EBIT Pretax profit Net Profit CY Net Profit EPS (sen) CY EPS (sen) PER (x) DPS (sen) Div. Yield (%) NTA/share (RM) Margins EBIT margin Pretax margin Effective tax rate ROE ROA Net Gearing (x) Growth ratios Turnover EBIT Pretax profit Core Net profit Core EPS 2014 263.8 34.8 FY 2011 14.1 4.2 2015 291.6 38.1 FY 2012 22.4 4.9

12mth 54.2 37.9

FY 2013 17.8 5.5

2011 734.9 245.7 243.3 190.2 198.8 25.7 26.9 26.4 10.0 1.5% 0.67

2012 931.1 260.3 258.6 201.6 226.4 27.3 30.6 24.9 10.0 1.5% 0.84

2013 1032.0 306.8 305.9 234.7 254.9 31.8 34.5 21.4 14.0 2.1% 1.02

2014E 1187.4 339.8 338.8 261.6 281.6 35.4 38.1 19.2 16.0 2.4% 1.22

2015E 1343.9 374.9 373.9 288.3 314.9 39.0 42.6 17.4 18.0 2.7% 1.43

33.4% 33.1% 21.8% 38.5% 34.3% net cash 28.5% 35.7% 36.8% 33.1% 33.1%

28.0% 27.8% 22.0% 32.5% 29.2% net cash 26.7% 5.9% 6.3% 6.0% 6.0%

29.7% 29.6% 23.2% 30.7% 27.8% net cash 10.8% 17.8% 18.3% 16.4% 16.4%

28.6% 28.5% 22.7% 31.2% 25.8% net cash 15.1% 10.8% 10.8% 11.4% 11.4%

27.9% 27.8% 22.8% 29.2% 24.4% net cash 13.2% 10.3% 10.4% 10.2% 10.2%

THONG Pak Leng Nov-12 Dec-12 Jun-13 Jul-13 Mar-13 03-26918887 ext 186 May-13

Aug-13

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pakleng.thong@bimbsec.com.my

4.00

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7 August 2013

Results Review: Hartalega Holdings 1QFY14

Quarterly figures
FY 31 Mar (RMm) Revenue EBIT Pretax profit Taxation Minority Interest Net Profit EPS (sen) Net gearing (x) EBIT margin (%) PBT margin (%) Net profit margin (%) Effective tax rate (%) 1QFY13 247.7 70.2 69.9 (16.5) (0.1) 53.4 7.3 net cash 28.3% 28.2% 21.5% 23.6% 2QFY013 255.0 76.5 76.3 (17.7) 0.1 58.6 8.0 net cash 30.0% 29.9% 23.0% 23.2% 3QFY13 259.6 78.6 78.4 (17.7) (0.2) 60.4 8.2 net cash 30.3% 30.2% 23.3% 22.6% 4QFY13 269.8 81.5 81.3 (18.9) (0.1) 62.3 8.5 net cash 30.2% 30.1% 23.1% 23.2% 1QFY14 278.0 82.0 81.9 (18.9) (0.1) 62.9 8.6 net cash 29.5% 29.5% 22.6% 23.1% QoQ Chg YoY Chg 3.1% 12.2% 0.7% 16.8% 0.7% 17.2% 0.0% 14.7% -20.2% 33.8% 1.0% 17.9% 1.0% 17.9% n.a. n.a. -2.3% 4.1% -2.2% 4.4% -2.0% 5.0% -0.7% -2.1% Source: BIMB Securities

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7 August 2013

Results Review: Hartalega Holdings 1QFY14

DEFINITION OF RATINGS BIMB Securities uses the following rating system: STOCK RECOMMENDATION BUY Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months. TRADING BUY Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain. NEUTRAL Share price may fall within the range of +/- 10% over the next 12 months TAKE PROFIT Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels. TRADING SELL Share price may fall by more than 15% in the next 3 months. SELL Share price may fall by more than 10% over the next 12 months. NOT RATED Stock is not within regular research coverage. SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analysts coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analysts coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analysts coverage universe, is expected to underperform the relevant primary mar ket index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer 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 BIMB Securities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB 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 judgements as of this date and are subject to change without notice. BIMB Securities Sdn Bhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

Published by

BIMB SECURITIES SDN BHD (290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur Tel: 03-2691 8887, Fax: 03-2691 1262 http://www.bimbsec.com.my

Kenny Yee Head of Research

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