BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2012(029624)

Thursday, 23 February, 2012

Results Review

Hartalega Holdings
Inline
Stock Data
Bloomberg Ticker Market Cap Issued shares 52-week range (H) 52-week range (L) 3-mth avg daily volume Free Float Shariah Compliant HART MK 2,906.2 Equity 364.6 8.35 5.00 356,120 43.9% Y Altman Z-score YTD price chg YTD KLCI chg Beta 11.1 36.5% 1.9% 0.7 50.5% 5.0%

Neutral
Price: Target Price: RM7.97 (+0.8%) RM8.04
Hartalegas 9MFY12 net earnings of RM151.6m is 10.1% higher than the previous year; and is in line with our forecast. QoQ sales volume is flat but net profit has improved by 10%. We expect a stronger 4Q given the stabilised raw material prices and bird flu fear which would spike up the demand. We maintain our earnings forecast and target price unchanged at RM8.04. Since our Take Profit call, share price has retraced therefore we are upgrading the stock to a NEUTRAL now. Better QoQ. QoQ sales volume is flat, however revenue and net earnings improved by 5.4% and 10% respectively thanks to better selling price, lower raw material price and reduction in the net loss in foreign exchange of RM6.4m. Effective tax is also lower at 20.7% compared to previous quarter of 22.5%. Improved margins. Due to lower raw material prices, EBIT margin has improved slightly from the previous quarter. Nonetheless, raw material prices were still higher as compared to the previous year hence the decline of its 9-month and YoY EBIT margins. However, the 9MFY12 EBIT margin of 28.3% is still far higher than industrial average of between 10%-15%. Expect stronger coming quarters. With the stabilised latex prices, importers in the US and EU are increasing their inventory level (from 2 months to 4 months) given the stabilised latex price, therefore demand is expected to increase. Moreover, its new plant 5 will provide additional production capacity by about 3bn pieces per annum (totalling to 9bn pieces) will boost future revenue. Bird flu threat. Recently, the number of bird flu cases has escalated. In January, Mexico recorded 1,623 cases, including 1,456 H1N1 cases while in New Jersey, there have been more than 300 confirmed cases; and in Vietnam, the Ho Chi Minh City Pasteur Institute confirmed that a new kind of porcine flu virus, A/H3N1, has appeared, apparently a combination of the swine-related A/H1N1 and A/H3N2 flu viruses. Over in Europe, Norway is facing an outbreak of influenza A, which is caused by a new strain of virus known as H3N2. France has issued a warning about the H3N2 swine flu. The bird flu threat will have positive impact on our glove producers as this has been proven in 2009-2010 where most of our glove players made record high earnings. Plant expansion. Hartalegas 6 production plant is in the pipeline and will boost production capacity by about 40% to 12bn pieces per annum once completed. Fine-tuned forecasts. We maintained our FY12 and FY13 net earnings estimates at RM212.3m and RM244.0m respectively. Balance sheet remains strong with a net cash position, while its projected FY12 ROE of 37.9% is the highest in the industry.
th

So Far So Good

Major Shareholders Hartalega Industries Budi Tenggara SB

Financial Derivatives Share Performance (%) Absolute vs. KLCI

n.a. 1mth (6.2) 40.1 3mth 44.4 32.6 12mth 49.3 40.1

Financial Highlights FYE 31 Mar 2009 Turnover 443.2 (RMm) EBIT 97.9 Pretax profit 95.5 Net Profit 84.5 EPS (sen) 23.2 EPS growth (%) 110.2% PER (x) 34.3 DPS (sen) 7.7 Div. Yield (%) 1.0% NTA/share (RM) 0.70 EBIT margin Pretax margin Effective tax rate ROE ROA Net Gearing (x) Growth ratios Turnover EBIT Pretax profit Core Net profit Share Price Chart
9.00 8.50 8.00 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 Feb-11

2010 571.9 181.2 177.8 142.9 39.2 69.1% 20.3 20.0 2.5% 0.97

2011 734.9 245.7 243.3 190.2 52.2 33.1% 15.3 21.0 2.6% 1.36

2012E 821.3 274.8 272.2 212.3 58.3 11.6% 13.7 22.0 2.8% 1.72

2013E 986.1 315.6 312.9 244.0 67.0 14.9% 11.9 23.0 2.9% 2.16 32.0% 31.7% 22.0% 34.5% 28.5% net cash

22.1% 21.5% 11.5% 33.2% 26.4% 0.08

31.7% 33.4% 33.5% 31.1% 33.1% 33.1% 19.5% 21.8% 22.0% 40.4% 38.5% 37.9% 33.5% 34.3% 30.3% net cash net cash net cash

56.5% 105.2% 104.6% 110.2%

29.0% 85.0% 86.2% 69.1%

28.5% 35.7% 36.8% 33.1%

11.8% 11.8% 11.9% 11.6%

20.1% 14.9% 14.9% 14.9%

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

The Research Team research@bimbsec.com.my 03-26918887 ext 111

View & Valuation. Our target price remains unchanged at RM8.04 based on 12.5x PER over its CY12 EPS. Share price has softened from its YTD high of RM8.35 to currently RM7.97; hence, we upgrade the stock from TAKE PROFIT to NEUTRAL.

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23 February 2012

Results Review: Hartalega Holdings 3QFY12

3QFY11 188.1 62.0 62.2 (13.0) (0.0) 49.2 13.5 net cash 33.0% 33.1% 26.2% 20.9% 4QFY11 192.5 67.7 66.3 (13.9) (0.0) 52.4 14.4 net cash 35.1% 34.4% 27.2% 20.9% 1QFY12 219.4 71.2 70.7 (15.9) 0.0 54.8 15.0 net cash 32.4% 32.2% 25.0% 22.5% 2QFY012 229.5 60.0 59.6 (13.4) (0.0) 46.1 12.7 net cash 26.1% 25.9% 20.1% 22.5% 3QFY12 242.0 64.5 64.1 (13.2) (0.1) 50.7 13.9 net cash 26.7% 26.5% 21.0% 20.7% QoQ Chg 5.4% 7.5% 7.6% -1.1% n.a. 10.0% 10.0% n.a. 2.0% 2.1% 4.4% -8.1% YoY Chg 28.6% 4.0% 3.0% 1.9% n.a. 3.1% 3.1% n.a. -19.1% -19.9% -19.8% -1.1% 9MFY11 542.4 178.1 177.0 (39.2) (0.0) 137.8 37.8 net cash 32.8% 32.6% 25.4% 22.2% 9MFY12 690.9 195.7 194.3 (42.5) (0.1) 151.6 41.6 net cash 28.3% 28.1% 21.9% 21.9% YTD Chg 27.4% 9.9% 9.8% 8.5% n.a. 10.1% 10.1% n.a. -13.7% -13.8% -13.6% -1.2%

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 (%)

Source: BIMB Securities

Income Statement
FY 31 Mar (RMm) Revenue EBITDA Pretax profit Tax MI Net profit CY Net profit EPS (sen) EPS growth (%) CY EPS DPS (sen) NTA/ share (RM) Net gearing (x) PER (x) Div. yield (%) P/ NTA (x) ROE (%) 2009 443.2 113.5 95.5 (11.0) (0.0) 84.5 128.3 23.2 110.2% 35.2 7.7 0.7 0.1 34.3 1.0% 11.4 33.2% 2010 571.9 201.0 177.8 (34.7) (0.1) 142.9 178.3 39.2 69.1% 49.0 20.0 1.0 net cash 20.3 2.5% 8.2 40.4% 2011 734.9 265.6 243.3 (53.1) (0.0) 190.2 206.7 52.2 33.1% 56.8 21.0 1.4 net cash 15.3 2.6% 5.9 38.5% 2012E 2013E 821.3 986.1 299.0 342.5 272.2 312.9 (59.9) (68.8) (0.0) (0.0) 212.3 244.0 236.1 255.7 58.3 67.0 11.6% 14.9% 64.8 70.2 22.0 23.0 1.7 2.2 net cash net cash 13.7 11.9 2.8% 2.9% 4.6 3.7 37.9% 34.5% Source: BIMB Securities

Balance Sheet
FYE 31 Mar (RMm) Non Current Assets Current Assets Total Assets Current Liabilities Non Current Liabilities Shareholders' Fund Minority Interests Equity & Liabilities 2009 246.4 128.4 374.8 52.8 67.5 254.4 0.1 374.8 2010 293.0 185.8 478.9 69.0 55.5 354.1 0.3 478.9 2011 348.9 282.4 631.3 75.4 61.3 494.3 0.4 631.3 2012E 348.4 421.2 769.6 81.5 61.3 626.6 0.2 769.6 2013E 371.5 572.4 943.9 95.3 61.3 787.0 0.3 943.9 Source: BIMB Securities

www.bimbsec.com.my

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23 February 2012
DEFINITION OF RATINGS BIMB Securities uses the following rating system:

Results Review: Hartalega Holdings 3QFY12

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 market 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 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 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

www.bimbsec.com.my

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