PETALING JAYA: Glove maker Hartalega Holdings Bhd’s stock is fully-valued but its long-term prospects remain compelling.
AmInvestment Bank Research said in a report to clients that although it held the view that demand for gloves will remain stable post Covid-19, it expects average selling prices or ASP to decline as there is no longer a rush for gloves compared to what happened at the beginning of the pandemic.
“We believe that the stock is fully valued with a price earnings ratio of 29 times to calendar year (CY) 2022 earnings and 40 times to 2023 earnings, ” it said, adding that it maintained a “hold” call on the stock.
In the report, the research house said Hartalega’s recently reported 9MFY2021 core net profit of RM1,766.3mil (vs. RM319.2mil in 1HFY20) accounted for 85% of its, and 70% of consensus’ full-year earnings estimates.
“It is above our forecasts, and we deem this to be above consensus expectations too as earnings are expected to improve in the fourth quarter on the back of rising demand and ASP.”
JF Apex Securities shares similiar sentiments.
“We maintain ‘hold’ with a lower target price of RM14.70 (from RM16.02 previously) as we assign a lower price earnings (PE) of 30 times CY2021 in view that the window of opportunity is getting slimmer upon wide adoption of Covid-19 vaccines as well as incoming competition from new entrants which in turn could pose a threat to its ASP, ” it said.
It said its valuation was lower than the average five-year mean PE of 42.3 times.
“We peg our valuation to CY2021 instead of FY2021 considering the impact of earnings normalisation in FY2022 after an exceptional strong profit growth in FY2021 pursuant to the pandemic.
“The market is forward looking and hence we opine that current share price is looking beyond its prevailing earnings peak, and starting to price in a recovery theme for this year upon massive vaccination.”
In its report to clients, CGS-CIMB Securities was a little more optimistic stating that “the best is yet to come” for Hartalega.
It noted that the glove maker’s recent nine-month results saw a surge of 453% year-on-year to RM1.8bil beating expectations at 69% of both its, and Bloomberg’s full-year estimates, thanks to strong ASPs.
“Hartalega should continue to post stronger results ahead, backed by higher ASPs, rise in production capacity and higher economies of scale, “ the research house said.
Did you find this article insightful?
67% readers found this article insightful