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Tuesday, May 03, 2016

Harta: Earnings Disappoints

Result Update

For QE31/3/2016, Harta's net profit dropped by 15% q-o-q but rose by 12% y-o-y to RM62 million while revenue was relatively unchanged q-o-q but rose 31% y-o-y to RM400 million. Revenue rose q-o-q  basically due to increase in demand but was offset by the weakening of the USD & more competitive sales pricing. Despite recognizing net forex gain of RM19.482 million (compared to a gain of RM707k in QE31/12/2015), PBT dropped q-o-q due to lower operating profit margin of 13.1% (compared to 22.7% in QE31/12/2015) as a result of lower selling prices, increase in natural gas cost, maintenance cost, depreciation & other overheads.


 Table: Harta's last 8 quarterly results


Chart 1: Harta's last 34 quarterly results

Valuation

Harta (closed at RM4.14 today) is trading at a trailing PER of 26 times (based on last 4 quarters' EPS of 15.72 sen). Despite a 17%-drop from RM4.98 since mid-February, Harta is still trading at fairly demanding multiple.

Technical Outlook

Harta tested its accelerated uptrend line, S1-S1 support at RM4.00. If this uptrend line holds, the stock will attempt to build a base here. Failure to do so will send the stock to its long-term uptrend line, SS support at RM3.20.


Chart 2: Harta's monthly chart as at May 3, 2016 (Source: Share Investor)

Conclusion

Based on strong leadership in the rubber glove sector & capable management team, Harta is considered a good stock for long-term investment. However, the stock is over-priced due to high expectation of rapid growth which has yet to materialize. Since its recent sharp drop, the rating of SELL INTO STRENGTH is now revised to HOLD.

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.

1 comment:

JDoyou said...

Thanks Alex for this insightful commentary. I was deciding to buy, and in the process of doing some research, landed on your blog.