KUALA LUMPUR (Jan 19): RHB Investment Bank Bhd has maintained its “Buy”rating on Hartalega Holdings Bhd at RM12.36 with a target price (TP) of RM23.50, and said it expects Hartalega’s 3QFY21 earnings to surge 643% year-on-year (y-o-y) and 65% quarter-on-quarter (q-o-q) to RM900 million.

In a note today, RHB’s Alan Lim said this is driven by an average selling price (ASP) increase estimated at 50% q-o-q.

“On top of superb earnings, we like Hartalega for its gold standard in COVID-19 prevention among workers.

“Our TP reflects 21.5x FY22F P/E (or -1.1SD below its 5-year average),” he said.

Lim said he expects Hartalega to release its 3QFY21 earnings in the next 2-4 weeks, based on historical observations on its result date release.

“Our estimate shows that 3QFY21 earnings should surge 643% y-o-y and 65% q-o-q to RM900 million. This should be a new record high for the company.

“ASP hike the key reason behind expected exceptional earnings. We believe that Hartalega’s 3QFY21 ASP should have jumped by 50% q-o-q to about US$50.00 per box of 1,000 pieces of gloves,” he said.

Lim added that this is consistent with the rate of increase in the market price.

“Recall that Top Glove Corp Bhd (Buy, TP: RM8.45) guided for a 30% q-o-q ASP increase for the quarter of Dec 2020 to Feb 2021.

“As Hartalega’s ASP comes from low base of US$33.80 per box in 2QFY21, the magnitude of increase is likely to be higher,” he explained.

Lim said in the short term, he expects a superb 3QFY21 in terms of net profit.

“Beyond that, Hartalega offers the best operational stability due to its gold standard in COVID-19 prevention,” he said.

Lim said risks included worse-than-expected glove demand after the COVID-19 pandemic ends, lower-than-expected sales volume/USD, and higher-than-estimated raw material prices.