4QFY3/14 results within our expectation but below street’s.
A temporary earnings blip before charting steep growth in FY3/16.
Maintain HOLD and MYR6.70 TP, but investors should look to accumulate on further weakness.
4QFY3/14 topline expanded 5% QoQ and 4% YoY on higher sales volume (+5% QoQ, +12% YoY) offset by lower ASP (flattish QoQ, -6% YoY) due to price competition. 4Q EBITDA margin fell to 29% (-2.8- ppt QoQ, -4.4-ppt YoY) due in part to the additional costs incurred (i.e. hiring of engineers and workers) ahead of the commissioning of its two new plants at Sepang.
A 3rd interim dividend of 3.5sen/shr was declared and a final dividend of 4sen/shr is expected to be declared soon, making fullyear dividend similar to last year’s 14.5sen/shr.
Owing to nitrile overcapacity concerns, Hartalega’s share price has fallen 17% YTD while its 12M forward PER has de-rated to 18x (from 23x in Jan 2014). We, however, are less concerned over the industry’s overcapacity issue and see any further share price weakness as good buying opportunity. Maintain FY3/14-15 earnings forecasts and introduce FY3/17. Our MYR6.70 TP is based on 19x.
Source: Maybank Research - 7 May 2014
A temporary earnings blip before charting steep growth in FY3/16.
Maintain HOLD and MYR6.70 TP, but investors should look to accumulate on further weakness.
What’s New
4QFY3/14 net profit of MYR49m (-15% QoQ, -21% YoY) brought fullyear net profit to MYR233m (-1% YoY), within our forecast of MYR232m but below street’s MYR249m.4QFY3/14 topline expanded 5% QoQ and 4% YoY on higher sales volume (+5% QoQ, +12% YoY) offset by lower ASP (flattish QoQ, -6% YoY) due to price competition. 4Q EBITDA margin fell to 29% (-2.8- ppt QoQ, -4.4-ppt YoY) due in part to the additional costs incurred (i.e. hiring of engineers and workers) ahead of the commissioning of its two new plants at Sepang.
A 3rd interim dividend of 3.5sen/shr was declared and a final dividend of 4sen/shr is expected to be declared soon, making fullyear dividend similar to last year’s 14.5sen/shr.
What’s Our View
Though earnings may stay subdued in the next 2-3 quarters, we look forward to an earning step-up of 29% in FY3/16 with the new Plant 7 and Plant 8 fully commissioned by 3QFY3/16. We also note that Hartalega has raised its nitrile ASP by 2% in May 2014 to fully pass on the higher gas cost.Owing to nitrile overcapacity concerns, Hartalega’s share price has fallen 17% YTD while its 12M forward PER has de-rated to 18x (from 23x in Jan 2014). We, however, are less concerned over the industry’s overcapacity issue and see any further share price weakness as good buying opportunity. Maintain FY3/14-15 earnings forecasts and introduce FY3/17. Our MYR6.70 TP is based on 19x.
Source: Maybank Research - 7 May 2014
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