KUCHING: Hartalega Holdings Bhd (Hartalega) missed estimates after posting a third quarter financial year 2015 (3QFY15) net profit of RM50 million.
AmResearch Sdn Bhd (AmResearch) highlighted the main reason for the slight miss in expectations is its higher-than-expected operational expenditure (opex) as the group front-loaded the costs related to the construction of its NGC. In 3QFY15, the additional expenses amounted to RM5 million, resulting in a higher cost per glove of 6.62 sen against 6.46 sen. In 2QFY15, it was 6.48 sen.
“Following this, we have lowered Hartalega’s FY15 forecast earnings estimate by six per cent to RM211 million, for which we have imputed higher opex.
“As we had noted in our earlier reports, the glove manufacturers, including Hartalega, would be prime beneficiaries of a strengthening dollar given their positions as net exporters.
“This was proven in the group’s 3QFY15 numbers, which showed a quarterly revenue increase of four per cent and one percentage point earnings before interest, tax, depreciation and amortisation (EBITDA) margin expansion in tandem with the seven per cent appreciation of the dollar during the quarter,” said the research house.
The positive topline growth can be mainly attributed to the rise in its blended average selling price and to a lesser extent, its marginally higher sales volume. Net profit growth was, however, slower partly due to the quarter’s higher effective tax rate of 28 per cent.
AmResearch added that compared to the same period last year, its nine month FY15 revenue was higher by 1.7 per cent but earnings had declined by 16 per cent as its EBITDA margin contracted from 33.5 per cent to 28.7 per cent.
This can be mainly attributed to higher labour, electricity and natural gas costs as well as a squeeze in its ASP from lower raw material prices and competitive pressures.
“We believe that Hartalega’s earnings are presently at an inflection point given that its first two NGC lines had been commissioned in January 2015.”
“With low average selling price continuing to spur global glove demand, management is confident of an earnings rebound as new capacity from its NGC plants progressively comes onstream.”