Result Update
For QE30/9/2014, Harta's net profit dropped 16% q-o-q or 24% y-o-y to
RM48 million on lower revenue - a decline of 1% q-o-q or 2% y-o-y to RM275
million. Revenue declined due to lower average selling price from declining raw material prices and more competitive selling price. The operating profit margin decreased q-o-q from 25.9% to 23.7% basically due to increase in price of nitrile material, increase in natural gas cost and increase in pre-operating expenses for NGC project.
Table: Harta's last 8 quarterly results
From Chart 1 below, we can see that the profit margin has been sliding since 2010. This capped the group's bottom-line since 2011. Now, we see revenue has also reached its tipping point. This means that supply has exceeded demand as the top producers ramped up their capacity. We may soon see a price war and this can lead to a sharper drop in profit margin.
Chart 1: Harta's last 28 quarterly results
Valuation
Harta (closed at RM6.80 yesterday) is trading at a PE of 24.1
times (based on last 4 quarters' EPS of 28.25 sen). At this PE multiple,
Harta is deemed over-valued.
Technical Outlook
Harta's long-term uptrend over the past 6 years has been interspersed by periodic sideways movement, such as witnessed in 2010-2011 and recently in 2014. I believe the stock will have good support at RM5.80-6.00.
Chart 2: Harta's daily chart as at Nov 18, 2014 (Source: Share Investor)
Conclusion
Based on lack of growth in its financial performance, demanding valuation & mildly negative technical
outlook, I would rate Harta as a SELL INTO STRENGTH.
Note:
In
addition to the disclaimer in the preamble to my blog, I hereby confirm
that I do not have any relevant interest in, or any interest in
the acquisition or disposal of, Harta.
No comments:
Post a Comment