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Wednesday, February 15, 2017

Harta: Improved Operating Performance Masked By Forex Losses

Result Update

For QE31/12/2016, Harta's net profit dropped by 7% q-o-q or 9% y-o-y to RM66 million while revenue rose 4% q-o-q or 15% y-o-y to RM456 million. Revenue rose q-o-q due to increase in demand and the strengthening of the USD. The operating profit margin increased from 20.1% to 23.6% basically due to the reduction of operation overhead, improved operation efficiency and strengthening of USD. Despite higher revenue & better operating profit margin, Harta's profit before tax dropped q-o-q due to the recognition of unrealized foreign exchange loss and fair value loss of foreign exchange contracts.


 Table: Harta's last 8 quarterly results


Graph: Harta's last 37 quarterly results

Valuation

Harta (closed at RM4.75 yesterday) is trading at a trailing PER of 31 times (based on last 4 quarters' EPS of 15.55 sen). Harta is still trading at very demanding multiple.

Technical Outlook

Harta is in a long-term uptrend line, with support at RM4.40-4.50.


Chart: Harta's weekly chart as at Feb 14, 2017 (Source: MalaysiaStock.Biz)

Conclusion

Based on improved operating performance, strong leadership in the rubber glove sector & capable management team, Harta is considered a good stock for long-term investment. Its rating is kept at HOLD due to demanding valuation.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

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