Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on July 23, 2018

Kossan Rubber Industries Bhd
(July 20, RM4.58)
Maintain hold with a higher target price (TP) of RM4.34:
Kossan Rubber Industries Bhd’s proposed 2-for-1 share split went ex last Friday. Its issued share base rises from 639.5 million to 1.3 billion.

 

Although the share split should not have any impact on its fundamentals, the larger issued share base should help improve the stock’s trading liquidity.

In the past, the stock’s average daily trading liquidity was only US$960,000. The lower share price post adjustment could also appeal to a larger group of shareholders given better affordability on per-share terms.

We gathered that commercial production from Plant 16 has stepped up from May 2018 and is expected to be fully commissioned by end-July 2018.

This new three billion pieces per annum plant is the first plant the group has added since end-2015; it will increase its total annual production capacity by 13.6% to 25 billion pieces per annum.

Also, construction is underway for Plant 17 (1.5 billion pieces per annum) and Plant 18 (three billion pieces per annum), which we expect will begin gradual production by end-4Q2018 and end-1Q2019 respectively.

In total, all three plants will grow its capacity by 34% to 29.5 billion per annum.

In terms of product development, Kossan has recently launched halal-certified gloves. It stated that it was the first glove maker globally in November 2017 to receive halal accreditation by Jabatan Kemajuan Islam Malaysia (Jakim).

These gloves are produced based on stringent controls under Good Manufacturing Practice (GMP) and Hazard Analysis and Critical Control Points (HACCP) requirements, while fulfilling syariah principles to ensure better hygiene and safety.

Currently, Kossan can produce up to 2.4 billion pieces of halal gloves annually. Pricing will be similar to existing gloves in a bid to be competitive for marketing purposes, the company said.

Overall, we expect Kossan to record stronger quarters ahead beg-2Q2018. This is expected to be driven by higher sales volume, driven by commercialisation of Plant 16, a stronger US dollar against the ringgit and lower latex prices to offset increase in nitrile butadiene prices and higher overall cost efficiencies.

Currently, Kossan has a sales product mix of 72 nitrile: 28 latex (end-1Q2018).

Overall, we make no changes to our earnings estimates and “hold” call.  — CGSCIMB Research, July 19

 

      Print
      Text Size
      Share