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KUALA LUMPUR: Kenanga Investment Bank Research trusts Hartalega Holdings Bhd
The outlook for the coming quarters is based on expectations of continued demand and an increase in average selling prices (ASP).
After a meeting with Hartalega, the research house increased its net profits for fiscal years 21 and 22 by 45% and 106% respectively to account for the higher ASP assumptions.
“We highlight that the industry ASP has increased for September to November delivery, suggesting that strong demand will continue over the next few quarters.
In line with the highest ASP in the industry, HARTA is expected to increase ASP by 30% and 40% in 2QFY21 and 3QFY21, respectively, “he said.
He added that Hartalega is confident of a strong sustained demand with reserved capacity until the end of 2021, which ensures that the delayed impact of the rise in ASP will be felt in the second half of 2021.
Kenanga maintained its “outperfrom” recommendation and RM26.22 price target based on 19.7x 2021 earnings per share, after downgrading its price-earnings rating because it believes valuations are already tied to supernormal earnings.
Meanwhile, with the progressive start-up of Plants 6 and 7, the group’s annual installed capacity is expected to increase from the current 39 billion to 44 billion pieces by fiscal year 22.
“Beyond Plant 7, NGC 1.5 is expected to have four plants built with an estimated capacity of 19 billion pieces and construction is expected to begin sometime in 2021.
“NGC 2 is expected to have 82 new production lines with a capacity of 32.3 billion parts that we believe will be primarily for nitrile gloves and will start in 1Q 2022,” he said.
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