Affin Research maintains Buy on Kossan

KUALA LUMPUR: Affin Research has maintained its Buy call on Kossan with a target price of RM4.20, it said on Tuesday.
“The latest acquisition supports our view that Kossan is ramping up its production capacity from its current 18 billion pieces of gloves,” it said.
Affin said in a Bursa announcement yesterday, Kossan announced that unit, Ideal Quality Sdn Bhd has bought a land in Kapar in Klang, Selangor from Panorama Positif Sdn Bhd for RM19.37mil, and the deal is expected to be completed by 1QFY14.
“The acquisition price tag for the industrial land works out to be RM48 psf, (arrivedbased on a willing buyer-willing seller basis) which we think is reasonable.
“Our ground checks indicate that similar industrial land in the surrounding area have been transacted at arround RM56-RM60psf.
“Regardless, we believe the funding of the acquisition should not be an issue for the company,” it said.
Affin said it is manageable judging from Kossan’s healthy annual operating cash flows of RM100mil.
“We understand that Kossan’s current industrial land which houses its manufacturing facilities spanning a total area of 96 acres (including 1 new factory purchased in 2011 to produce special purpose gloves and 1 new production plant purchased in Feb 2013) is fully occupied.
“Thus, we believe the purpose of this piece of land is for the construction and operation of a new glove manufacturing plant.
“This will help to expand its gloves capacity to 26 billion pieces of gloves by end-2015. Notwithstanding the strong capacity ramp-up, average utilization rate will be sustained at 88%,” it said.