Stock Name: KOSSAN
Company Name: KOSSAN RUBBER INDUSTRIES BHD
Research House: MAYBANK
Kossan Rubber Industries Bhd
(March 8 , RM7.55)
Maintain buy at RM7.38, target price raised to RM10.20: Kossan shares' target price is raised to RM10.20 from RM7 as we lift the company's core earnings by 24% to 40%, and dividend forecasts by 253% to 268% for 2010 and 2011 respectively on stronger operating and financial prospects. Maintain buy.
Two misfortunes - foreign exchange derivatives loss and fire incidents - which upset its business focus and reputation in 2009, are unlikely to be repeated in 2010. These incidents aside, we see immediate strong quarter ahead and expect Kossan to grow by 24% to 40% a year in 2010 and 2011, underpinned mainly by the glove manufacturing capacity expansion programme.
Kossan's 2010 and 2011 earnings forecast is raised by 24% to 40%, lifted by capacity expansion plans but on falling (Ebit) earnings before interest and taxes margin outlook due to average selling price (ASP) pressure as new capacity crowds the market.
Kossan is slated to add two billion pieces of gloves a year over the next two years, which will bring total capacity to 15 billion to 16 billion pieces by-end 2011.
Development will be staggered in four phases, with eight double former lines built every half-year. Capital expenditure (capex) is RM35 million to RM40 million per phase.
We have raised our dividend per share (DPS) forecasts to 30 sen for 2010 (+253% year-on-year ) and 35 sen (+268% y-o-y) for 2011.
The management has hinted that dividend payout will be higher from 2010 onwards on stronger free cash flows (FCF) expectation. We are guided that dividend payout could reach up to 40% on FCF strength which translates into DPS of 36 sen to 40 sen a year and dividend yield of 5%. For comparison, Kossan had made a DPS payout of 14% to 27% between 2006 and 2008.
We estimate Kossan to make FCF of RM84 million to RM88 million in 2010 and 2011 and turn into net cash by 2011.
We remain buyers of Kossan as valuations are attractive and yields are improving. Our RM10.20 target price includes a 10% discount to our discounted cash flow-derived valuations to reflect potential systemic issues arising from the industry.
Valuations are also attractive at a price-to-earnings ratio (PER) of 8.3 times which is within its eight -year average PER of 8.5 times but below the sector's 11 times. - Maybank IB , March 8
This article appeared in The Edge Financial Daily, March 09, 2010.
Company Name: KOSSAN RUBBER INDUSTRIES BHD
Research House: MAYBANK
Kossan Rubber Industries Bhd
(March 8 , RM7.55)
Maintain buy at RM7.38, target price raised to RM10.20: Kossan shares' target price is raised to RM10.20 from RM7 as we lift the company's core earnings by 24% to 40%, and dividend forecasts by 253% to 268% for 2010 and 2011 respectively on stronger operating and financial prospects. Maintain buy.
Two misfortunes - foreign exchange derivatives loss and fire incidents - which upset its business focus and reputation in 2009, are unlikely to be repeated in 2010. These incidents aside, we see immediate strong quarter ahead and expect Kossan to grow by 24% to 40% a year in 2010 and 2011, underpinned mainly by the glove manufacturing capacity expansion programme.
Kossan's 2010 and 2011 earnings forecast is raised by 24% to 40%, lifted by capacity expansion plans but on falling (Ebit) earnings before interest and taxes margin outlook due to average selling price (ASP) pressure as new capacity crowds the market.
Kossan is slated to add two billion pieces of gloves a year over the next two years, which will bring total capacity to 15 billion to 16 billion pieces by-end 2011.
Development will be staggered in four phases, with eight double former lines built every half-year. Capital expenditure (capex) is RM35 million to RM40 million per phase.
We have raised our dividend per share (DPS) forecasts to 30 sen for 2010 (+253% year-on-year ) and 35 sen (+268% y-o-y) for 2011.
The management has hinted that dividend payout will be higher from 2010 onwards on stronger free cash flows (FCF) expectation. We are guided that dividend payout could reach up to 40% on FCF strength which translates into DPS of 36 sen to 40 sen a year and dividend yield of 5%. For comparison, Kossan had made a DPS payout of 14% to 27% between 2006 and 2008.
We estimate Kossan to make FCF of RM84 million to RM88 million in 2010 and 2011 and turn into net cash by 2011.
We remain buyers of Kossan as valuations are attractive and yields are improving. Our RM10.20 target price includes a 10% discount to our discounted cash flow-derived valuations to reflect potential systemic issues arising from the industry.
Valuations are also attractive at a price-to-earnings ratio (PER) of 8.3 times which is within its eight -year average PER of 8.5 times but below the sector's 11 times. - Maybank IB , March 8
This article appeared in The Edge Financial Daily, March 09, 2010.
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