MALAYSIA INVESTMENT RESEARCH REPORT KDN PP13226/04/2013 (032022)

JF APEX SECURITIES BERHAD

(47680-X)

Company Result

7 August 2013

Hartalega Holdings Berhad

Off to a good start
Share Price Target Price RM6.79 RM6.76

HOLD
Maintained

Result Hartalega registered RM247m and RM62.9m of revenue and net profit respectively in its 1QFY2014. On a yoy basis, top line grew 12.2% while net earnings rose 17.8%. The results were in line with ours and consensus expectations as we foresee stronger quarters ahead following the full completion of the Plant 6 in July 2013. We are forecasting revenue and net earnings growth of 27% and 19% respectively in FY2014 and we believe that Hartalega is well on track to achieve our target. Comments Sales growth remained strong with the Group sold 23% more rubber gloves as compared to the same period last year. Hartalega was able to capitalize on the robust demand growth in the nitrile market thanks to the extra capacity from the Plant 6, which in total boosted the Groups production capacity by 3.9 billion pcs per annum to c.13 billion pcs per annum. 1QFY2014 operating profit rose 17% yoy, partly due to the higher operating efficiency with higher production speed as a result of the completion of the all 10 new production lines in Plant 6. Besides, the declining raw material prices have also contributed to the expansion in operating margin to 29.5% from 28.3% a year ago. Focus on the next phase on growth will be shifted to Next Generation Integration Glove Complex (NGC) since the current land in Bestari Jaya is fully occupied following the completion of Plant 6. As the continuing demand switch to nitrile gloves has attracted other peers to ramp up their nitrile capacity aggressively, the progress of the construction of NGC will be vital as the Group is looking to fend off future competition. Earnings Outlook/Revision We are keeping our earnings forecast unchanged as the results were within our expectation in view of the stronger quarters ahead. Valuation & Recommendation Maintain HOLD with a revised Target Price of RM6.76 (from RM6.00) We are ascribing a higher PER of 17.8x to the stock, which is close to its +2SD above 5-year mean. However, the stock is fully valued in our point of view following the overwhelming YTD performance. We reckon that the premium valuation is justified in view of market capitalization of RM5b, which is the largest among peers. Besides, we are also positive on Hartalegas ability maintain its position as the most efficient glove maker sustaining its impressive earnings margins. its its to by

Company Description Hartalega Holdings Bhd. manufactures a wide range of latex gloves. The Company's products include natural rubber examination gloves, nitrile examination gloves, nitrile clean room gloves and natural rubber surgical gloves. Stock Data Bursa / Bloomberg code Board / Sector Syariah Compliant status Issued shares (m) Par Value (RM) Market cap. (RMm) 52-week price Range(RM) Beta (against KLCI) 3-m Average Daily Volume 3-m Average Daily Value^ Share Performance Absolute (%) Relative (%-pts) Major Shareholders Hartalega Industries SB EPF Budi Tenggara Bhd 1m 4.62 3.90 3m 6.09 24.03 12m 50.89 37.91 % 50.2 6.1 4.9

5168 / HART MK Main / Industrial Yes 738.9 0.50 5017.1 4.21-6.85 0.71 0.79m RM4.88m

Historical Chart

Source: Bloomberg

Soong Wei Siang 03-87361118, ext. 754 research.dept@jfapex.com.my

Please read carefully the important disclosures at end of this publication

7 August 2013

Company Result Hartalega Holdings Berhad

JF APEX SECURITIES

Quarterly figures Year Ending 31 Mac Revenue (RMm) Operating Profit (RMm) PBT (RMm) Net Profit (RMm) EPS(sen) Operating Margin PBT Margin Net Profit Margin 1QFY14 278.0 82.0 81.9 62.9 8.6 29.5% 29.5% 22.6% 4QFY13 269.8 81.5 81.3 62.3 8.5 30.2% 30.1% 23.1% 1QFY13 247.7 70.2 69.9 53.4 7.3 28.3% 28.2% 21.6% Q-o-Q (%) 3.0% 0.6% 0.7% 1.0% 1.0% -0.7ppt -0.7ppt -0.5ppt Y-o-Y (%) 12.2% 16.8% 17.2% 17.8% 17.8% 1.2ppt 1.2ppt 1.1ppt

Source: Company, JF Apex

Financial Summary Year Ending 31 Mac Revenue (RM'm) EBITDA (RM'm) Operating profit (RM'm) Net profit (RM'm) EPS P/E (x) Dividend yield EBITDA margin PBT margin Net profit margin FY2012 931.1 290.7 261.7 201.7 0.27 24.7 1.3% 31.2% 27.8% 21.7% FY2013 1032.0 338.7 306.8 235.1 0.32 17.0 2.6% 32.8% 29.6% 22.8% FY2014F 1312.5 451.7 386.7 279.8 0.38 17.8 2.5% 34.4% 27.3% 21.3% FY2015F 1482.3 490.5 432.9 326.0 0.44 15.3 2.9% 33.1% 28.2% 22.0% FY2016F 1699.4 544.8 484.8 366.4 0.50 13.6 3.3% 32.1% 27.6% 21.6%

Source: Company, JF Apex

7 August 2013

Company Result Hartalega Holdings Berhad

JF APEX SECURITIES

JF APEX SECURITIES BERHAD CONTACT LIST JF APEX SECURITIES BHD Head Office: 6th Floor, Menara Apex Off Jalan Semenyih Bukit Mewah 43000 Kajang Selangor Darul Ehsan Malaysia General Line: (603) 8736 1118 Facsimile: (603) 8737 4532 PJ Office: 15th Floor, Menara Choy Fook On No. 1B, Jalan Yong Shook Lin 46050 Petaling Jaya Selangor Darul Ehsan Malaysia General Line: (603) 7620 1118 Facsimile: (603) 7620 6388 DEALING TEAM Head Office: Kong Ming Ming (ext 3237) Shirley Chang (ext 3211) Norisam Bojo (ext 3233) Wong Wing Haur, Alvin (ext 3226) Tew Li Mei (ext 3288) Institutional Dealing Team: Lim Teck Seng Sanusi Bin Mansor (ext 740) Fathul Rahman Buyong (ext 741) Ahmad Mansor (ext 744) Lum Meng Chan (ext 743) PJ Office: Mervyn Wong (ext 363) Mohd Hanif Wan Said (ext 111) Fong Jia Wen (ext 822) RESEARCH TEAM Head Office: Lee Chung Cheng (ext 758) Lee Cherng Wee (ext 759) Jessica Low Jze Tieng (ext 756) Soong Wei Siang (ext 754) Gabriela Fang Minn Fern (ext 753) Elliya Harisna bt Junaedi (ext 752)

JF APEX SECURITIES - RESEARCH RECOMMENDATION FRAMEWORK

STOCK RECOMMENDATIONS BUY HOLD SELL TRADING BUY : The stocks total returns* are expected to exceed 10% within the next 12 months. : The stocks total returns* are expected to be within +10% to 10% within the next 12 months. : The stocks total returns* are expected to be below -10% within the next 12 months. : The stocks total returns* are expected to exceed 10% within the next 3 months.

TRADING SELL : The stocks total returns* are expected to be below -10% within the next 3 months. SECTOR RECOMMENDATIONS OVERWEIGHT : The industry as defined by the analyst is expected to exceed 10% within the next 12 months.

MARKETWEIGHT : The industry as defined by the analyst is expected to be within +10% to 10% within the next 12 months. UNDERWEIGHT : The industry as defined by the analyst, is expected to be below -10% within the next 12 months.

*capital gain + dividend yield

JF APEX SECURITIES BERHAD DISCLAIMER

Disclaimer: The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of JF Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report. Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of JF Apex Securities Berhad and are subject to change without notice. JF Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. JF Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against JF Apex Securities Berhad. JF Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of JF Apex Securities Berhad.

JF Apex Securities Berhad (47680-X) (A Participating Organisation of Bursa Malaysia Securities Berhad)
3

Published & Printed By: