Harta: Bonus is coming

Result Update

For QE31/12/2017, Harta's net profit rose 71% y-o-y to RM113 million while revenue rose 32% y-o-y - to RM603 million. Compared to the immediate preceding quarter, PBT rose a meager 1% on the back of a 3%-increase in revenue while net profit was unchanged.

Revenue increased 3% q-o-q driven by higher sales volume which increase by 4.0% in line with increasing demand from customers. PBT rose 1% q-o-q mainly due to higher sales volume despite lower average selling price.


 Table: Harta's last 8 quarterly results


Graph: Harta's last 41 quarterly results

Proposed Bonus Issue

Harta has proposed a 1-for-1 bonus issue when it announced its latest results. This is the 4th bonus issue after the earlier 3 bonus issue of shares and 1 bonus issue of warrants:

• In Sep 2010, bonus issue of shares of 1-for-2
• In May 2012, bonus issue of shares of 1-for-1 cum bonus issue of warrants of 1-for-5
• In Sep 2015, bonus issue of shares of 1-for-1

Valuation

Harta (closed at RM11.50 yesterday) is trading at a trailing PER of 46 times (based on last 4 quarters' EPS of 25.03 sen). This high PER can only be justified by the high earning growth of 60% achieved in the past 4 quarters. 

The group may be able to sustain this high earning growth based on the recent statement to the press, Harta managing director Kuan Mun Leong updated that the group’s Next Generation Integrated Glove Manufacturing Complex (NGC) is well on schedule to meet growing demand. "We have completed commissioning of Plant 4 with all 12 production lines operational and construction has commenced on Plant 5. In addition to this, we aim to launch our world-first non-leaching antimicrobial nitrile examination gloves by the second quarter of 2018.” For more, go here.

Technical Outlook

Harta is in a long-term uptrend, with share prices moving within an upward channel. The price movement was so bullish that it broke above the upper line of the channel at RM8.00, and rose to a high of RM12.18!


Chart 1: Harta's monthly chart as at Feb 7, 2018 (Source: Shareinvestor.com)

Looking at the weekly chart below, I believe the upside for Harta in the near term is fairly limited. On the other hand, it is possible to it to pullback to RM10.00 over the next few months.


Chart 2: Harta's weekly chart as at Feb 7, 2018 (Source: Shareinvestor.com)

Conclusion

Despite the improved operating performance, strong leadership in the glove sector and capable management team, I think it is a good time to take some profit on this stock.

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.