KUALA LUMPUR: Hartalega Holdings Bhd is confident of sustained strong demand for its gloves with capacity having booked up till end of 2021, according to Kenanga Research.
The firm "strongly" reiterated its positive view on Hartalega's prospects for the next few quarters following a meeting with its investor relations staff recently.
Kenanga Research said Hartalega had reassured that the lagged impact from average selling price (ASP) hike would be felt in the second half of financial year 2021 (FY21).
The firm highlighted that industry ASP had risen for September to November delivery, suggesting that the robust demand would continue over the next few quarters.
In line with higher industry ASP, Hartalega is expected to raise ASP by 30 per cent and 40 per cent in the second quarter of FY21 (Q2FY21) and third quarter of FY21 respectively.
"We expect a hike in raw material prices and potential tight supply in formers due to supply constraints forming a potential potent combination for higher ASPs," the firm said today.
Kenanga Research expects Hartalega's Q2FY21 net profit, due to be released by end-October, to be higher quarter-on-quarter and year-on-year.
This will be in tandem with solid sector growth due to higher volume from new capacity expansions of Hartalega's Plant 6 and 7 and better margins due to higher ASP and operating efficiencies from new plants.
"While we raised our FY21/FY22 net profit by 45 per cent/106 per cent to account for higher ASP assumptions, our target price is unchanged as we lowered our target price earnings ratio rating to -0.5SD (standard deviation) below five-year mean (compared to above mean previously) to reflect a moderation in earnings growth towards more sustainable levels beyond FY22."
Nevertheless, there remains ample upside to its target price of RM26.22, said Kenanga Research, which reiterated its "outperform" call on Hartalega.