RHB sees Kossan FY13 profit up 33% yoy, raises TP to RM5.43

Business & Markets 2013
Written by Kamarul Anwar of theedgemalaysia.com
Tuesday, 28 May 2013 15:45
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KUALA LUMPUR (May 28): RHB Research today estimated KOSSAN
RUBBER INDUSTRIES BHD []’s net profit for the year ending
December 31, 2013 (FY13) to increase by 33.33% to RM132 million
from last year's RM88 million.
The growth will come from the rubber glove maker's strategy to churn
out a 50:50 product mix of natural rubber latex and nitrile gloves as it
will allow Kossan to tap into both markets.
Thus, the research house retained its “buy” call on Kossan but revised
up its target price to RM5.43 from RM3.73.
In a note today, RHB also said it had been told by Kossan’s
management that the company will concentrate more on the higher-end
surgical and nitrile gloves segment as these products give Kossan
better pricing power and broader margins.
Additionally RHB said that Kossan is looking to expand its production
capacity from the current 16 billion pieces to 20 billion pieces annually
by 2014.
“We continue to like Kossan’s balanced product mix of 50:50 comprising
natural rubber latex and nitrile gloves, which allows it to tap into both
market segments. From these we derive a new fair value of RM5.43 as
we roll over our valuations to FY14, based on a 12 times target priceearnings
ratio (raised from nine times previously),” said RHB.
Yesterday, Kossan announced its net profit for its first quarter ended March 31, 2013 (1QFY13) was RM34 million. RHB said
the figure made up 26% of its annual net profit estimates and 28% of the consensus’s.
“The laudable results were attributed to higher sales and better production efficiency, which boosted its bottom line,” the
research house said.
At noon break, Kossan’s counter was traded 11 sen or 2.71% higher at RM4.17. A total of 291,400 shares were transacted.