Hot Stock Kossan rises 5% on strong earnings outlook

by **Cals** Tue 07 Jan 2014, 18:33

Hot Stock Kossan rises 5% on strong earnings outlook

Business & Markets 2014

Written by Jeffrey Tan of theedgemalaysia.com

Tuesday, 07 January 2014 11:12

KUALA LUMPUR (Jan 7): Kossan Rubber Industries Bhd rose as much as 5% in morning trades after upbeat notes from two research houses, as it is seen to maintain its uptrend momentum with strong two-year earnings compound annual growth rate (CAGR) of 22%.

At 11 am today, the rubber glove company rose 19 sen or 5% to RM4.32. The fifth top gainer saw trades of some 1 million shares.

In a note, Alliance Research said Kossan is expected to generate above-industry two-year earnings CAGR of 22% this year and next year on strong capacity expansion and improved profitability.

Alliance research analyst Ian Wan said the rubber glove company is the only ‘strong buy’ in the sector, while maintaining a ‘neutral’ rating for the sector.

Wan said he raised the target price earnings ratio for Kossan to 18 times from 16 times based on this year’s earnings. Target price (TP) is estimated at RM4.82.

“The strong capacity expansion of a two-year CAGR of 30% per annum is underpinned by support from major customers.

“We see improved profitability as the group achieves better product mix and production efficiencies,” he said.

Wan pointed out that among the four glove companies, Kossan outperformed its peers with share price appreciation of 156%, followed by Hartalega (+51%), Supermax (+43%) and Top Glove (-2%).

Kossan also beat its peers in terms of sales volume growth in 9M FY13 and year to date core earnings expansion of 20.3% year-on-year and 37% respectively.

Meanwhile, Kenanga Research in a note yesterday said it maintained ‘outperform’ for the stock with TP of RM4.46.

The Kenanga research team said: “Our FY14E forecast is 10% above consensus as we believe the market is under-appreciating Kossan’s ability to improve margins.”

“We forecast full-year FY13 dividend per share to 6.3 sen, implying a 38% payout ratio – well ahead of its under 20% payout ratios in the past three years.”