AllianceDBS cuts Kossan earnings forecast, ups TP

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KUALA LUMPUR(Nov 21): AllianceDBS Research Sdn Bhd cuts its forecast on Kossan Rubber Industries Bhd’s earnings by up to 9% after the glove manufacturer recorded a lower third quarter profit from a year earlier.

In a note today, AllianceDBS said it cut its earnings forecast for Kossan by 7%,3% and 9% for financial years ending December 31, 2014 (FY14), FY15 and FY16 respectively.

The earnings forecast cut was to reflect Kossan's lower profit before tax per thousand (PBT/k) gloves , according to Alliance.

"Falling margins is an issue currently faced by the entire glove industry, and is not unique to Kossan. Instead, Kossan has outperformed its peers, as its 6% q-o-q decline in PBT/k gloves was less severe than the other glovemakers under our coverage," AllianceDBS said.

Yesterday, Kossan said its 3QFY14 net profit fell to RM34.4 million from RM35.41 million a year earlier. 9MFY14 net profit was higher at RM105.83 million .

Today, Alliance DBS said Kossan's 9MFY14 net profit was below expectations at 67% and 65% of the research firm's and consensus full year estimates respectively.

AllianceDBS maintained its “buy” recommendation for Kossan shares but raised its target price (TP)for the stock to RM5.05

AllianceDBS said the higher TP was "justified given Kossan’s relatively defensive profitability in the face of industry wide margin compression."