KUALA LUMPUR: Affin Hwang Capital Research has downgraded Hartalega Holdings Bhd
from
"hold" to "sell" as it would be challenging for the glovemaker to deliver a similar above-50% growth rate in FY19E.
The research firm said the group is already running at full capacity and that margin expansion would not be as significant as in FY18E.
It added that since 4QFy17, Hartalega's plants have been operating at utilisation rates of more than 90%.
"We have revised up our utilisation rate forecast to 92%, as our channel checks suggest that demand is likely to remain robust due to the vinyl glove shortage.
"We forecast a strong earnings growth in FY18E of 53%, which partially takes into account stronger utilisation rates versus the average utilisation rate in FY17 of 87%."
Affin Hwang Research said a recent meeting with management indicated that it is sticking to ita annual capacity growth rate target of 15% to 20% in ordr to maintain the current supply gap.
This would result in better margins in FY18E relative to FY17.
"For FY19E, however, we expect a more modest margin expansion and growth rate versus FY18E, as HART would have benefited from the spike in demand starting from 2QFY18E," said the research firm.
It has raised FY18-20 earnings per share forecasts by 2% to 10.2% to factor in the better growth prospects.
"As we also roll forward our valuation to FY20E, we have raised our TP to RM9.30 on a slightly higher multiple of 26x, from RM7.20 (25x CY18E PER)."
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