Harta- when the going gets tough...

Results Update

Harta has just announced its results for QE31/3/2011. Its net profit increased by 6.5% q-o-q or 12.9% y-o-y to RM52.4 million while turnover increased by 2.3% q-o-q or 17.8% y-o-y to RM192.5 million. The company attributed the improved profitability to "the contribution from plant 5’s more efficient production lines and higher capacity to generate higher sales".


Table 1: Harta's last 8 quarterly results

Harta's financial performance set it apart from the other glove producers, such as Topglove, Kossan & Supermax. Harta was able to continue to grow its top-line & bottom-line in the past few quarters where its competitors were all badly affected by higher latex prices as well as the strengthening of the Ringgit. The other thing is Harta was able to improve its profit margin while its competitors had suffered sharp erosion in the profit margin. for example, Harta's pre-tax profit margin stood at 34.4% for QE31/3/2011 as compared to Topglove (6.5% for QE28/2/2011) or Supermax (14.1% for QE31/12/2010) or Kossan (13.8% for QE31/12/2010). The main reason for the better profit margin enjoyed by Harta is that the company is less impact by the sharp rise in latex prices as it produces more nitrile glove than rubber glove.


Chart 1: Harta's last 14 quarterly results



Chart 2: Harta's profit margin over the last 14 quarters

Valuation

Harta (closed at RM5.70 yesterday) is now trading at a PE of 10.9 times (based on the last 4 quarters' EPS of 52.3 sen). For a steady grower, Harta is deemed attractively priced. It should command a higher PE multiple, possibly in the region of 12-13 times.

Technical Outlook

Harta is still in an uptrend line with support at RM4.90-5.00. The stock consolidated in a Head-&-Shoulders formation with a neckline at RM5.70 for the past 12 months. It broke above the neckline in February but no rally followed. Could the absence of a rally be due to the poor market sentiment? We don't know.


Chart 3: Harta's weekly chart as at May 10, 2011 (Source: Quickcharts)

Conclusion

Based on good financial performance, attractive valuation & positive technical outlook, Harta is still a good stock for long-term investment.