KUALA LUMPUR (April 3): Hong Leong IB (HLIB) Research is positive on Kossan Rubber Industries Bhd’s proposed disposal of its vacant freehold in Kuala Langat, Selangor for RM153.38 million to raise funds to finance the expansion of the group’s rubber glove production in Bidor, Perak.

In a note today, the research house said the sale price is higher than the previous offer of RM147.7 million from Liansheng Paper (Malaysia) Sdn Bhd in January.

It said this offer is higher than the estimated current market value by the independent value of RM145 million and net book value of the land at RM96.7 million in FY18 (financial year ended Dec 31, 2018).

“We reckon that this is a good opportunity for Kossan to realize the value of the land, which is currently not economically utilized,” said the research house.

The research house added the proposed disposal is expected to result in a net gain of approximately RM39 million to Kossan. In addition, the funds raised will be utilised to hasten the development of the Bidor land.

“With the land disposal, Kossan’s net gearing is expected to fall from 27.6% (as at FY19) to 17.1% on a proforma basis,” it said.

HLIB Research maintained its “hold” call on Kossan with an unchanged target price of RM5.

“Our target price is a function of mid-FY20 (financial year ending Dec 31, 2020) EPS (earnings per share) pegged to a PE (price-earnings) multiple of 27 times (+1.5SD three-year historical mean),” it said.

Shares in Kossan Rubber Industries Bhd are currently trading four sen or 0.78% higher at RM5.15.