MAYBANK Investment Bank (Maybank IB) expects glove manufacturer Hartalega Holdings Bhd to report strong earnings for its fourth quarter (4Q) ended March 31, on lower raw material prices and better operating efficiencies.

“We remain bullish on Hartalega as we expect strong 4Q earnings, and this underlying strength is sustainable into FY2010-FY2011. We have raised our estimates for the next two years by between 8% and 9%, and raised our target price by 33% from RM2.60 to RM3.45,” Maybank IB said in a note yesterday.

The higher earnings forecast for FY2010-2011 is based on the “anticipated sterling 4Q09 performance”.

“We expect margins to continue to expand in 1Q10. We raise our target price to RM3.45 as we move our valuation methodology from earnings multiple to discounted cash flow (DCF). The share price has soared 41% since we initiated coverage a month ago. We see further upside as the company is still capable of stretching profits,” Maybank IB said in maintaining its buy call.

Hartalega’s earnings for the year ended March 31, 2009 is set to double to between RM78 million and RM79 million year-on-year, the research outfit said.

“We see 4QFY09 net profit growing a robust 8% to 13% quarter-on-quarter to between RM24 million and RM25 million, driven by better Ebit (earnings before interest and tax) margin on lower raw material prices and operating efficiencies,” Maybank IB said.

It expects Ebit margin to improve one percentage point quarter-on-quarter to 23% and inventory holding days to at least halve quarter-on-quarter to 20 days in 4Q09.

Maybank IB also forecast Hartalega to declare a second interim dividend of four sen when releasing its 4Q09 results and a final dividend per share of four sen to four sen “later”, bringing total payout for FY2009 to between 12 sen and 13 sen or 30% payout.

Hartalega’s “superior” return on asset (ROA) and return on equity (ROE) “are testament to its tag as the most efficient player in the industry”, Maybank IB said.

Hartalega’s plant expansion plan which is on track, will progressively install 12 new lines at Plant 5 and raise production capacity by three billion gloves per annum or 19% per annum over FY2010-FY2011.

Hartalega jumped 16 sen to close at RM3.18 yesterday.