Stock Name: KOSSAN
Company Name: KOSSAN RUBBER INDUSTRIES BHD
Research House: OSK
Kossan Rubber Industries Bhd
(May 21, RM7.41)
Maintain buy at RM7.52, target price of RM11.30: Kossan's 1QFY10 results made up 26% and 25% of consensus and our FY10 forecasts respectively. Overall, the company maintained the absolute quarterly net profit amount as it was able to pass on higher costs to consumers and kept sales consistent.
The 1QFY10 revenue of RM262.8 million was 15.4% higher quarter-on-quarter (q-o-q) after Kossan raised selling prices by about US$1-US$3 (RM3.32-RM9.96) per one thousand pieces to pass on rising latex cost to its customers during the quarter. However, due to the minimal change in its production volume since it was already operating at above 90% utilisation, the 1QFY10 core net profit was quite consistent at about RM30 million q-o-q.
On the other hand, the 1QFY10 Ebit (earnings before interest and tax) margin of 15.6% was 6.7 percentage points lower q-o-q given the higher revenue base in the current quarter. We understand that Kossan is no different from the other rubber glove manufacturers whereby it would only pass on the incremental cost to customers to maintain its absolute bottom line rather than the cost plus additional profit, as this would not be acceptable to its customers.
Finally, there were no more foreign exchange (forex) losses as Kossan had recognised the last of its forex loss in 4QFY09, amounting to RM17 million (total of up to RM53 million, which wiped out some 38% of its FY09 net profit.) This will enable Kossan to start its FY10 with a clean quarter. Moreover, based on our recent plant visit, we gather that all its new nitrile lines, which had progressively begun operation early last year, are now running at full steam and hence, we believe it should see growing contribution from nitrile gloves going forward.
Our target price for Kossan remains unchanged at RM11.30 based on the existing PER (price-earnings ratio) of 14 times FY11 EPS (earnings per share). We continue to like the company for being a balanced player, with a product mix comprising 60% natural rubber gloves and 40% nitrile gloves, which allows it to target all markets. ' OSK Research, May 21
This article appeared in The Edge Financial Daily, May 24, 2010.
Company Name: KOSSAN RUBBER INDUSTRIES BHD
Research House: OSK
Kossan Rubber Industries Bhd
(May 21, RM7.41)
Maintain buy at RM7.52, target price of RM11.30: Kossan's 1QFY10 results made up 26% and 25% of consensus and our FY10 forecasts respectively. Overall, the company maintained the absolute quarterly net profit amount as it was able to pass on higher costs to consumers and kept sales consistent.
The 1QFY10 revenue of RM262.8 million was 15.4% higher quarter-on-quarter (q-o-q) after Kossan raised selling prices by about US$1-US$3 (RM3.32-RM9.96) per one thousand pieces to pass on rising latex cost to its customers during the quarter. However, due to the minimal change in its production volume since it was already operating at above 90% utilisation, the 1QFY10 core net profit was quite consistent at about RM30 million q-o-q.
On the other hand, the 1QFY10 Ebit (earnings before interest and tax) margin of 15.6% was 6.7 percentage points lower q-o-q given the higher revenue base in the current quarter. We understand that Kossan is no different from the other rubber glove manufacturers whereby it would only pass on the incremental cost to customers to maintain its absolute bottom line rather than the cost plus additional profit, as this would not be acceptable to its customers.
Finally, there were no more foreign exchange (forex) losses as Kossan had recognised the last of its forex loss in 4QFY09, amounting to RM17 million (total of up to RM53 million, which wiped out some 38% of its FY09 net profit.) This will enable Kossan to start its FY10 with a clean quarter. Moreover, based on our recent plant visit, we gather that all its new nitrile lines, which had progressively begun operation early last year, are now running at full steam and hence, we believe it should see growing contribution from nitrile gloves going forward.
Our target price for Kossan remains unchanged at RM11.30 based on the existing PER (price-earnings ratio) of 14 times FY11 EPS (earnings per share). We continue to like the company for being a balanced player, with a product mix comprising 60% natural rubber gloves and 40% nitrile gloves, which allows it to target all markets. ' OSK Research, May 21
This article appeared in The Edge Financial Daily, May 24, 2010.
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