Harta, another promising rubber glove maker

Hartalega Holdings Bhd ('Harta') is involved in the manufacture of natural rubber gloves & nitrile gloves. It was listed in April this year, where the share was offered to the public at a price of RM1.80.

According to its listing prospectus, Harta was ranked as the 7th largest manufacturer of rubber gloves in Malaysia in FY2007, producing 654 million pairs of natural rubber gloves and 503 million pairs of nitrile gloves. By early 2008, Harta's production capacity has increased to 3.3 billion pairs. It is currently undertaking the construction of its 4th & 5th plants, which are scheduled to be completed by FYE2009 & FYE2010, respectively. The capacity of 4th & 5th plant are 2.9 billion & 3.1 billion pairs, respectively. For more on Harta's future plans, see the table below.



Harta has just announced its results for 2Q2008 ended 30/9/2008. Its net profit increased by 42.5% q-o-q to RM18.4 million, while its turnover increased by 26.9% to RM111.5 million.



The main concern that investors must address is the company's financial position, given its aggressive expansion plan. Based on the Balance Sheet as at 30/9/2008, Harta's current & gearing ratio are satisfactory at 2.4 & 0.3 times, respectively. The 2 plants under construction, plus equipment, will cost RM108.8 million (as per the reported Capital Commitments). As at 30/9/2008, Capital W-I-P stood at RM65.4 million, which means that an amount of RM43.4 million has yet to be booked in. Once the plants are completed & the capex fully booked in, Harta's gearing ratio may increase to at most 0.5 times, while current ratio may drop a bit (from its present lofty level). At these levels, Harta's financial position is not worrying.

Since the management is confident that the company's sale will continue to grow due to its increased capacity & strong demand, then we can conservative assume that Harta's earning will be at least 30 sen for the next 4 quarters. Based on its closing price of RM1.44 on last Friday, Harta is now trading at a future PE of 4.8 times. Since Harta's capacity could increase by 182% by FYE2010, the room for its earning to move higher is good, provided the demand remained strong.

Chartwise, Harta seems to be in medium-term downtrend line, with resistance at RM1.45-48. One may also say that the share price is trapped within a range of RM1.30 & RM1.63. A break above the downtrend line could send the share price to the upper reaches of the trading range. A break above that range will then signal the start of a bullish phase for Harta.


Chart: Harta's daily chart as at Nov 14, 2008 (source: Quickcharts)

Based on attractive valuation & promising prospect, Harta could be another attractive BUY for long-term investing.