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Stocks In Focus MY (Hartalega, Hup Seng, IHH Healthcare) – 11/02/15
Malaysia Daily Bulletin | 11 February 2015

Hartalega Hit By Competition

  • The world’s largest synthetic glove manufacturer Hartalega Holdings’ net profit declined by 14.4 percent from RM57.9 million in 3Q14 to RM49.5 million in 3Q15 as a result of a lower average selling price caused by declining raw material prices, more competitive selling prices and a rise in electricity and natural gas cost.
  • The drop in net profit comes on the back of a 6.9 percent increase in revenue to RM286.4 million, mainly attributable to a weakening ringgit as well as a small increase in sales volume while profits were buoyed by higher production output and greater operational efficiency. The company management feels that the results for this period are within expectations.
  • The group said it was confident of sustaining long-term growth with its expansion plans via the RM2.3 billion next-generation integrated glove manufacturing complex (NGC), which will include six high-capacity manufacturing plants housing 72 production lines. Upon completion of these plants, the company hopes to increase its production by another 28.5 billion pieces.

Significance: AmResearch has kept a ‘Buy’ rating on Hartalega with an unchanged fair value of RM7.90 a share since it feels that the firm’s earnings are currently at an inflection point as the first two NGC lines had been commissioned in January 2015.

Hup Seng Declares Strong Quarterly Earnings

  • Hup Seng Industries’ 4Q14 turnover expanded 10.4 percent to RM73.6 million and net profit jumped 34.6 percent to RM12.6 million, underpinned by increased domestic and export sales on the back of robust growth in demand for its cream crackers.
  • The group noted that unlike the preceding quarter where festive seasons slackened its domestic demand, a significant increase in cream crackers sales in the last quarter contributed to higher sales volume. Overall, the group recorded a 4.3 percent and 3.8 percent rise in top and bottom lines to RM262.2 million and RM38.1 million respectively in FY14.
  • However, the firm expects 2015 to be challenging as it noted that a weakening eurozone and China together with disinflation will likely be the greatest threat to the global economy this year.

Significance: Unlike in 2014 where the firm experienced gross margin compression due to costs pressure, Hup Seng expects headwinds in 2015, as lower commodities and oil prices affect demand. On the company’s front, it will continue to build the competitiveness of its products and remain active in product portfolio innovation.

IHH Seeks Control Of India’s Global Hospitals

  • Unofficial reports have suggested that IHH Healthcare and American private equity firm TPG Capital Management are vying for a 70 percent stake in Global Hospitals, an established healthcare services provider in India. This is due to the profitability of the Indian healthcare market given the rise in richer Indian patients willing to fork out more for higher quality healthcare.
  • Using a 3 billion Indian rupee (RM173 million) buyout of a 10 percent stake in Global Hospitals in 2013 as a simple guidance, the current deal which is valued at US$350 million (RM1.24 billion) suggests that an estimated 70 percent interest is at stake. PublicInvest Research believes that such a deal would be favourable to the company, helping consolidate its position in the region after its acquisition of an 11 percent stake in Apollo Hospital Enterprises, India’s prominent private hospital chain.
  • The research house feels that the company will also gain from Global Hospital’s wealth of market experience and opines that the group will continue to experience robust revenue growth underpinned by its capacity expansion, especially as more beds are added in 2015, with the newly opened hospitals expected to contribute to the group’s revenue.

Significance: Pending further clarification and the scheduled release of results on 26 February, PublicInvest Research remains ‘Neutral’ on the group with a target price of RM4.50, noting that the stock is richly valued for now at 44 times FY15 price-to-earnings ratio.

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