PublicInvest raises Hartalega target price to RM5.36

PETALING JAYA: PublicInvest Research has raised Hartalega Holdings Bhd's target price to RM5.36 from RM5.06 previously as a result of revising its valuation methodology to a discounted cash flow approach to better capture the group's long-term growth.
"Our assumptions are conservative, as we have considered lower capacity utilisation rate of about 80% for FY16-FY18, whereas Hartalega's current average utilisation is 82-85%. Given this lowered assumption as well, our earnings estimates are lowered by 9%-19% for FY16-FY18," the research house said.
"We deem its future growth being priced-in at this juncture however, thus maintaining our neutral view on Hartalega," it added.
PublicInvest had visited Hartalega's Next Generation Integrated Gloves Manufacturing Complex (NGC) recently, and is reaffirmed by the progress of its expansion plans. NGC is currently focused on producing medical examination grade nitrile gloves that are 3.2g and 3.5g in weight.

Hartalega is constructing six plants, which houses 72 production lines with 28.5 billion pieces capacity. The group expects two lines to be installed per month until the full commissioning targeted by 2020.
The 22 lines out of a total 24 lines for Plant 1 and Plant 2 have already been commissioned and will be fully operational this month. Plants 3 and 4 are under construction, together with its supporting facilities. The commercial production of Plant 3 and Plant 4 is expected to commence progressively from June 2016 onwards.
NGC's productivity has improved 33% to 2.6 workers per million gloves, compared with its Batang Berjuntai's plant of 3.9 workers per million gloves.
The group plans to implement quality inspection automation machines and automation in packaging, which will further reduce headcount.
In addition, energy savings through retrofitting new devices in the NGC facilities will improve efficiency. The significant cost savings would be reflected in the long run.