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Result Update

For QE30/9/2020, Harta's net profit rose 148% q-o-q or 425% y-o-y to RM545 million while revenue rose 46% q-o-q or 90% y-o-y to RM1.346 billion. The higher sales revenue was attributed to higher sales volume and increase in average selling price for the quarter. Profit before tax for the quarter increased by RM 410.1 million or 150.3% y-o-y to RM683.0 million due to increase in sales revenue and better production efficiency.

Valuation

Harta (closed at RM18.28 yesterday) is trading at a trailing PER of 62 times (based on last 4 quarters' EPS of 29.47 sen). If we annualized the last 2 quarterly EPS of 22.44 sen to arrive at a full-year EPS of  44.88 sen, then its PER will be lowered to 40.7 times.

Like in the case of Supermx, we are being too generous in using the annualized EPS of 44.88 sen to compute the PER for Harta as we looked ahead to the normalization of profit due to increased supply of gloves (as a result of increased capacity) as well as lower demand if Covid-19 pandemic were to subside. This will be a tough judgement call for analysts and investors.

Financial Position

As at 30/9/2020, Harta's financial position is deemed healthy with current ratio at 2.63x and gearing ratio at 0.44x.

Corporate Exercise Missing!

Unlike Kossan, Supermx and Topglov, Harta has yet to announce its bonus issue. The timing of that announcement will have a direct impact on the price movement in the near term. I expect a 1-for-1 bonus issue from Harta to be proposed in the next 2-3 months.

Technical Outlook

Harta share price has recently broken its short term uptrend line, S2-S2. The technical outlook for Harta will depend on whether it can surpass the intermediate downtrend line, RR at RM19.00. Until that happens, the near term outlook will likely be a sideways movement.

Conclusion

Based on improved financial performance, satisfactory financial position and reasonable valuation, I revise Harta's rating to a HOLD.

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.

 http://nexttrade.blogspot.com/2020/10/harta-johnny-come-lately.html