For QE30/6/2015, Harta's net profit rose 14% q-o-q or 10% y-o-y to RM63 million while revenue gained 5% q-o-q or 15% y-o-y to RM320 million. Revenue increased q-o-q due to the strengthening of the USD and increase on sales volume. Net profit rose q-o-q due improved operating margin (from 22% in QE31/3/2015 to 25% in QE30/6/2015) as a result of contribution from new production lines from New-Generation Glove Manufacturing Complex (NGC) plants.
Table: Harta's last 8 quarterly results
From Chart 1 below, we can see that the profit margin has been sliding since 2010. Can Harta break out of the declining profit margin?
Chart 1: Harta's last 31 quarterly results
Update on NGC Project
Todate, Harta has completed 2 plants with 11 production lines. This RM2 billion project will take 8 years to complete. Upon completion, the entire complex will have a capacity of 13.5 billion gloves per annum. This will raise Harta's tital capacity to 42 billion pieces per annum.
Valuation
Harta (closed at RM8.60 yesterday) is trading at a trailing PER of 31 times (based on last 4 quarters' EPS of 27.4 sen). At this PE multiple, Harta is deemed over-valued.
Technical Outlook
Harta is in a long-term uptrend over the past 6 years. It is well-supported by the 10-month SMA line at RM8.60. Upside is limited as the stock can only go higher if it can charge thru the recent high at RM9.00.
Chart 2: Harta's daily chart as at Aug 4, 2015 (Source: Share Investor)
Conclusion
Despite satisfactory financial performance & mildly positive technical outlook, Harta can be considered for long-term investment. I revised my rating for Harta as a SELL INTO STRENGTH to HOLD due to prospect of higher revenue & profits from the NGC project.
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.
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