Harta maintained its profit margin

Results Update

Harta has just announced its results for QE31/3/2012, where its net profit dropped marginally by 1% q-o-q or 5% y-o-y to RM50 million. Revenue dropped 1% q-o-q but rose 25% y-o-y to RM240 million. Due to stiff competition, Harta was barely able to maintain its profit margin in the face of high prices of nitrile latex as well as increased fuel cost.


Table: Harta's last 8 quarterly results


Chart 1: Harta's last 18 quarterly results

Further expansion planned

Harta had started the construction of its sixth plant, which would boost output by 30% (or an additional 3.5 billion pieces per year). This plant will have ten production lines, with the first production line targeted to start operation in August this year. All ten lines will be fully operational by June 2013.

Valuation

Harta (closed at RM7.84 yesterday) is now trading a at a PE of 14 times (based on last 4 quarters' EPS of 55.4 sen). At this PE multiple, Harta is deemed fully valued.

Technical Outlook

After an upside breakout above the psychological RM6.00 level, Harta quickly raced above the RM8.00 mark. It has been trading around the RM8.00 level for the past 2 months. Of late, it has struggled to stay above the RM8.00 level and had dipped to a low of RM7.70 at times. I expect the stock to trade between RM7.50 & RM8.00 until ta change in its financial results kicks in.


Chart 2: Harta's weekly chart as at May 8, 2012 (Source: Tradesignum)

Conclusion

Based on satisfactory financial performance & strong management, Harta is a good stock for long-term investment. However, the stock is now trading at a PE of 14 times, which means that its upside potential is limited. As such, I would rate it a HOLD.