KUALA LUMPUR(Feb 5): Public Investment Bank Bhd upgraded its target price (TP) for Kossan Rubber Industries Bhd shares to RM5.90 from RM5.12 on the company's cost-efficiency initiatives.

The TP upgrade, which came with an unchanged “outperform” call for Kossan (fundamental: 2.1; valuation: 0.7) shares was despite a surge in the stock's performance. Public Investment said Kossan's share price rise was largely driven by the strengthening US dollar and defensive nature of rubber glove sector.

"Albeit richer in valuation, the continuous production efficiency and diversified product-mix, strengthened further by the materialisation of improving contributions from the technical rubber products (TRP) and clean-room division will continue to support Kossan's growth.

“We are maintaining our recommendation, premised on our dividend discount model (DDM)-approach target price of RM5.90, reflecting a 16.6 times financial year 2016 (FY16) forecast price to earnings ratio(PER)," Public Investment said.

At 10.50am, Kossan shares fell three sen or 0.59% to RM5.15 with 148,600 units changing hands

The stock was traded at RM5.14 at 11:36am.

Over the last six months, Kossan shares had risen from an intraday low of RM3.93 on August 29, 2014 to current levels.

At current levels, Kossan shares are traded at a price-earnings ratio of some 22.76 times versus the industry average of 20.08 times.

Kossan's dividend policy is closely watched. Public Investment said Kossan had a minimum dividend policy of 30%, with plans to increase its payout ratio to 40%-50% in the next three years

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)