KUALA LUMPUR: CIMB Equities Research is maintaining its Hold recommendation on nitrile glove maker Hartalega and retained its target price of RM6.46, which is 3.8% below the last traded price of RM6.71.
It said on Wednesday the core earnings in the first quarter ended June 30, 2014 (1QFY15) were within its (24% of FY15 forecast) and consensus’ expectations (23%).
Revenue was flat on-year due to lower selling prices, while the drop in net profit was due to higher operating costs.
“Given the in-line results, we maintain our full-year forecast and target price, which is pegged at 17.7 times CY15 P/E (10% premium to the implied market P/E of 16.1 times).
CIMB Equities Research said the core net profit dropped 18.4% on-year due to increases in electricity and natural gas tariffs as well as maintenance costs, which could indicate that the company has been unable to fully pass on the higher operating costs to its customers.
As a result of this, its EBITDA margin dropped 4.9 percentage points on-year.
“As the company penetrates further into the markets of developing countries, its natural rubber gloves sales contribution have continued to increase, from 6.7% in 1QFY14 to 7.6% in 1QFY15.
“This, we believe, has also contributed to the decline in its margins as natural rubber gloves, especially in the emerging markets, command lower margins,” it said.