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Kossan still going strong
by Cals Mon 23 Dec 2013, 11:18
Kossan still going strong
Business & Markets 2013
Written by RHB Research
Monday, 23 December 2013 09:55
Kossan Rubber Industries Bhd
(Dec 20, RM4.00)
Maintain buy at RM4 with a revised fair value of RM4.52 (from RM4.13): Kossan recently acquired a 9.26-acre (3.75ha) land parcel in Klang, Selangor, and has earmarked it for capacity expansion. Once the acquisition is completed by the first quarter ending March 31 of financial year 2014 (1QFY14), it plans to build 20 new production lines by end-2014. This will lift its total installed production capacity by five billion to six billion pieces annually to 27 billion pieces (ongoing expansion will boost capacity to 22 billion pieces by May 2014).
We believe this will bolster Kossan’s production and earnings moving forward as it targets for the new lines to be commissioned latest by the first half (1H) of FY15.
We gather that Kossan is looking to expand its technical rubber product (TRP) division in Indonesia — it plans to begin construction of its new plant there by 1HFY14. We are upbeat on the prospects of its TRP division given lower production costs and the favourable operating environment. As at the nine months ended Sept 30 of FY13, its TRP division chalked up positive sales growth of 8.2% year-on-year (y-o-y), with sales of its cleanroom gloves soaring more than 100% y-o-y.
Our FY13 estimates are unchanged. However we raise our FY14 net profit estimate by 4.7% after raising FY14 earnings before interest and tax margin to 14% (from 13.4%) to reflect the group’s enhanced production efficiency and greater contributions from higher-margin products such as cleanroom gloves and TRP.
We continue to like Kossan given its: (i) strong earnings visibility from its planned capacity expansion over the next two years; and (ii) balanced product mix (53% nitrile and 47% natural rubber), which allows it to tap into both market segments.
We maintain our “buy” call, but raise our fair value (FV) to RM4.52 (from RM4.13) in view of Kossan’s healthy capacity expansion plans. Our new FV is pegged to a higher 16 times (from 15.3 times) FY14 earnings per share, which is in line with the sector’s average weighted FY14 price-earnings ratio of 16.4 times. — RHB Research, Dec 20
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Business & Markets 2013
Written by RHB Research
Monday, 23 December 2013 09:55
Kossan Rubber Industries Bhd
(Dec 20, RM4.00)
Maintain buy at RM4 with a revised fair value of RM4.52 (from RM4.13): Kossan recently acquired a 9.26-acre (3.75ha) land parcel in Klang, Selangor, and has earmarked it for capacity expansion. Once the acquisition is completed by the first quarter ending March 31 of financial year 2014 (1QFY14), it plans to build 20 new production lines by end-2014. This will lift its total installed production capacity by five billion to six billion pieces annually to 27 billion pieces (ongoing expansion will boost capacity to 22 billion pieces by May 2014).
We believe this will bolster Kossan’s production and earnings moving forward as it targets for the new lines to be commissioned latest by the first half (1H) of FY15.
We gather that Kossan is looking to expand its technical rubber product (TRP) division in Indonesia — it plans to begin construction of its new plant there by 1HFY14. We are upbeat on the prospects of its TRP division given lower production costs and the favourable operating environment. As at the nine months ended Sept 30 of FY13, its TRP division chalked up positive sales growth of 8.2% year-on-year (y-o-y), with sales of its cleanroom gloves soaring more than 100% y-o-y.
Our FY13 estimates are unchanged. However we raise our FY14 net profit estimate by 4.7% after raising FY14 earnings before interest and tax margin to 14% (from 13.4%) to reflect the group’s enhanced production efficiency and greater contributions from higher-margin products such as cleanroom gloves and TRP.
We continue to like Kossan given its: (i) strong earnings visibility from its planned capacity expansion over the next two years; and (ii) balanced product mix (53% nitrile and 47% natural rubber), which allows it to tap into both market segments.
We maintain our “buy” call, but raise our fair value (FV) to RM4.52 (from RM4.13) in view of Kossan’s healthy capacity expansion plans. Our new FV is pegged to a higher 16 times (from 15.3 times) FY14 earnings per share, which is in line with the sector’s average weighted FY14 price-earnings ratio of 16.4 times. — RHB Research, Dec 20
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