Hartalega a laggard due to premium valuation


HARTALEGA Holdings Bhd’s weaker price performance compared to its peers like Supermax Corp Bhd and Top Glove Corp Bhd is due to a premium valuation the company has enjoyed.

Hartalega’s share price only rose by some 283% to RM20.50 from RM5.35 on Jan 2, 2020, while industry competitor Supermax has seen a share price appreciation of 1,300% to RM19.34 from RM1.38 at the beginning of the year.

Kossan Rubber Industries Bhd’s share price has risen by 343% to RM18.44 over the same period, while Top Glove has risen by 478.06% to RM26.88.

“Hartalega is trading at a forward price-to-earnings ratio (PER) of 79 times based on our FY21 earnings forecast while Supermax is trading at forward PER of 64 times based on our FY21 earnings estimates.

“Hence, investors may think Hartalega is more expensive than its peers. Overall, I think the valuation of Hartalega is quite high at the moment which may limit its share price upside,” MIDF Amanah Investment Bank Bhd (MIDF Research) analyst Jessica Low stated in an email reply.

Inter-Pacific Research Sdn Bhd has downgraded its call of ‘Neutral’ from ‘Trading Buy’ on Hartalega after the recent run-up in its share price.

“Our new earnings per share forecast reflects the recent industry average selling price (ASP) revision as we increase our FY21/FY22 ASP to 129.6 sen/129.6 sen from 106.9 sen and 105.6 sen respectively, thus raising our target price to RM21.37 from RM13.18,” the company stated.

It added that the upside potential for Hartalega’s price outlook depends on further ASP upgrades from sustain order visibility.

Inter-Pacific said downside risk factors include its lofty valuation outstripping earnings growth, steep increase in production cost (energy, packing materials and labour), shortage of workers and volatility in foreign-exchange rates.

Hartalega’s shares ended 1.08% or 22 sen higher at RM20.50 yesterday as investors continued to buy into glovemakers as the number of Covid-19 infections continued to rise across the world.

The share price gains by Hartalega yesterday made it the third-most valuable company on the local exchange with a market capitalisation of RM70.27 billion, ahead of Public Bank Bhd at RM64.29 billion, but slightly behind Top Glove valued at RM72.67 billion.


Wednesday, September 30, 2020

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