Harta- still standing tall

Results Update

Harta has just announced its results for QE31/12/2010. Its net profit increased by 4.5% q-o-q or 32.3% y-o-y to RM49 million while its turnover increased by 2.1% q-o-q or 26.6% y-o-y to RM188 million.


Table: Harta's last 8 quarterly results

The significant increase in top-line & bottom-line was attributable to increased production capacity & demand. The company managed to continue to grow its top-line & bottom-line on sequentially basis- something which its competitors failed to do- due to its dominant position in nitrile gloves. This products suffered less from the sharp rise in the price of rubber latex over the past few quarters. See Chart 1 & 2 below.



Chart 1: Harta's last 13 quarterly results



Chart 2: Harta's profit margin for the last 13 quarterly results

Valuation

Harta (closed at RM5.63 yesterday) is now trading at a trailing PE of 11 times (based on last 4 quarters' EPS of 51 sen). At this PE multiple, Harta is deemed attractive. However, the slowdown in the growth rate for its top-line & bottom-line may cap the share price at the present level for now.

Technical Outlook

Harta's upside is capped by the strong horizontal resistance at RM5.60. The price movement in the past 9 months takes the shape of an inverted head & shoulders ('H&S') formation, with the neckline at RM5.60. Harta broke above the neckline on Jan 7 & 10 without significant volume. If we ignore this false breakout, the H&S formation is in tact. I believe an upside breakout above both the neckline at RM5.60 & the recent high of RM5.75 on significant volume would lead to the continuation of its prior uptrend. However a drop below the left & right shoulders at RM4.80-5.00 would convert this pattern into a reversal pattern.


Chart 3: Harta's weekly chart as at Feb 7, 2010 (Source: Tradesignum)

Conclusion

Based on good financial performance & attractive valuation, I would rate Harta a HOLD. The HOLD call would change if the share price either go above the RM5.60-70 level (a BUY call) or go below the RM4.80-5.00 level (a SELL call).