Wednesday, May 16, 2012
Why It Is Safe To Bet Hartalega
I ate my own cooking ( Bet heavily on Hartalega ) and come on it smell
pretty good as well. At RM 7.44 a piece at the time of writing this, it
sounds pretty safe if not cheap to me. There are several things I as one
of the share holder always bear in mind.
1. Hartalega is the best and most efficient nitrile glove producer in
the world and maybe the lowest cost producer. There are noises saying
that the price war will squeeze it's margin and blah blah blah.... But
read the lines by management carefully. It said they have to put
customer order in allocation for the coming months. The whole production
lines are running at full capacity. Will the margin squeezed further ? I
doubt so. The latest 2 quarters show that it's net margin is still
maintain at 20%. Highest among it's peer.
2. The demand of glove is inelastic. The current Euro debacle won't
affect it's earning much. The switiching of rubber glove to nitrile
glove will continue in quarters to come.
3. It is quite certain it's profit will increase substantially in the
coming months, quarters or years. it has the technology, it has the
stream of orders, it's has the competitive edge over it's peers. All it
has to do is increase its production lines. Unlike its competitor who
have tons of hurdles to be clear to catch up with Harta.
4. Shall the demand of nitrile gloves outpaces the future nitrile glove
production capacity, all the nitrile glove makers will be doing just
fine. Shall it not, who do you think will suffer ? Harta has a net
margin of 20% compare to its peers f around 8-10% pr maybe even less, it
will "sapu" all the market share by killings all its competitor by
lowering it's margin by say 5%. Will that effect their earning ? Will
with the increase future production capacity, the earning might in fact
goes up. What is the problem of lowering down the margin of 5% margin
but can double your revenue ? I just don't get why some analysts are so
concern about it's slight margin erosion. The main issue is the
production capacity, which the management is putting a well structured
production expansion plan.
5. The dividend policy is laid out with at least 45% payout ratio. While
we are enjoying a decent level of annual dividend yield, we are
actually on the " earning expansion boat " in the comings months.
6. Certainty. There is no 100% guarantee return , but it is quite
certain that Hartalega will be doing very well in the coming years. The
reading is quite clear on the wall. All it has to do is increasing it's
production capacity. It is silly to buy producer which is running at 70%
production capacity and not Hartalega which it's order outpaces it's
production capacity now. Is it safe to bet Hartalega at RM7.44 ? YES IT
Will you get a cheaper price a piece ? Ha ha ha ha I which I have a
crystal ball to tell me that. But I will certainly load more shall the
price go further down in future. By the way 6 sen dividend ex on 23rd
May and ex bonus and free warant on 24th May.
About Greece exit from Euro ..... I can't see a reason why the whole
Europe want to see that happen. If I have to bet whether Greece exit
Euro or not I will bet NO. Anyway, I doub;t the whole thing will effect
Harta earning. Happy Trading .....
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