Hot Stock Kossan rises 2% on positive financials, upgrade

by **Cals** Tue 27 May 2014, 00:45

Hot Stock Kossan rises 2% on positive financials, upgrade

Business & Markets 2014

Written by Jonathan Gan of theedgemalaysia.com

Monday, 26 May 2014 13:50

KUALA LUMPUR (May 26): Kossan Rubber Industries Bhd rose 2.05% today following the rubber gloves producer's first quarter profit growth announcement.

At 11:54am, Kossan rose eight sen to RM3.98 with some 224,700 shares traded. The stock settled at that price at 12.30pm.

Kossan reported that net profit rose 10.8% to RM36.83 million in its first quarter ended March 31, 2014 from RM33.22 million a year earlier.

Following the company’s encouraging financial performance, analysts maintained their optimistic views on the company.

Lee Yen Ling, analyst with Maybank Investment Bank, expects stronger earnings ahead on Kossan's commencement of its new capacity in the third quarter.

“The new capacity is largely earmarked for the production of the thin 3g nitrile gloves, which will have very competitive average selling prices on less rubber input.

"Additionally, we also see margin enhancement on the higher production efficiency of its new nitrile lines.” Lee said.

Lee also brushed off concerns on the company’s nitrile glove-oversupply.

“Kossan’s share price has fallen 15% in the last two months on the nitrile-oversupply concern. We are, however, not unduly concerned as glove makers do check on its customers’ demand before embarking on massive capacity expansions,” said Lee.

“Maintain "buy" and target price (TP) of RM5,” she said.

Zulkifili Hamzah of MIDF Research has also maintained the firm's “buy” call on Kossan shares but raised the stock's TP to RM5.23 from RM5.20.

Zulkifli said Kossan's expansion would enhance its total production capacity to 22 billion pieces a year in 2015.

“Kossan expects to further expand its gloves division by commissioning three additional plants with a total of 17 production lines ... With the new plants, Kossan will have a total capacity of 22.0 billion pieces per annum in 2015,” he said.