Thursday 28 Mar 2024
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Kossan Rubber Industries Bhd
(Sept 12, RM4.28)

Maintain add with target price of RM5.22: We visited Kossan’s old and new plants in Klang recently. The visit was hosted by its general manager Edward Yip. It started with a question-and-answer session, followed by a plant tour during which Yip explained the entire manufacturing process as well as the difference between the old and new plants.

Despite the expected selling price pressure from the higher capacity availability in the industry, particularly in 2015, Kossan remains confident of achieving our FY15 earnings forecast. It said it may beat our forecast. The company is confident that it will be able to fill up its upcoming capacity addition and is not concerned about the pricing pressure given that it is in the right segment and sells its products at reasonable prices. We like Kossan for the same reasons as well as its more diversified earnings base due to its exposure to cleanroom glove and technical rubber products. While Kossan’s earnings before interest, taxes, depreciation and amortisation margin (20% in 1HFY14) is still below Hartalega Holdings Bhd’s margin (31% in 1QFY15), we believe the gap will narrow as the group’s nitrile contribution increases.

We are positive about its plans to expand its technical rubber product business in Indonesia and rubber glove production in Vietnam given the high demand and lower operating cost in these countries.

Accumulate Kossan. Despite its strong fundamentals, consistent outperformance relative to its peers in the past few quarters and our belief that the company is less susceptible to the more intense competition in the industry, Kossan is trading at only 14.4x CY15 price-earnings ratio, a discount to Top Glove Corp Bhd. — CIMB Research, Sept 12
 



This article first appeared in The Edge Financial Daily, on September 15, 2014.

 

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