Kossan Rubber Industries Bhd (Nov 18, RM3.08)
Upgrade to buy at RM3.07 with revised target price of RM3.59 (from RM3.04): Kossan’s 9MFY11 results were in line with our and consensus expectations, accounting for 70% and 68% of the full-year figure respectively. As expected, 9MFY11 earnings were 24.1% lower year-on-year (y-o-y) at RM67.5 million.
The good performance in 3QFY11 is unsurprising as the latex price has softened to RM6.77 per kg from its highest level in April 2011 of RM10.93. Higher earnings of RM23.6 million (+12.9% quarter-on-quarter [q-o-q]) were mainly anchored by strong results from both its divisions. Pre-tax profit surged 25.2% q-o-q for its gloves (due to lower latex price) and 16% for its technical rubber products (TRP) (strong demand from automotive sector). Earnings before interest and tax (Ebit) margin for 3Q fell within our estimate of 11% to 12% at 11.8%. We expect Ebit margin for FY11F to average around 11.5% to 12%.
Kossan has declared an interim tax-exempt dividend of three sen which is expected to be paid on Dec 20. The three sen accounts for about 40% of our full-year figure.
We are rolling our valuation to FY12F with a price-earnings ratio of 10 times, which is Kossan’s three year-historical average PER. Thus, we derive a higher target price of RM3.59 (from RM3.04). Therefore, we are upgrading our call to “buy” from “neutral” previously. We believe that average FY12 PER of 10 times is sensible given that Top Glove Corp Bhd has always traded at a premium among glove players with a multiple of 14 times and Hartalega Holdings Bhd at 11 times. — MIDF Research, Nov 18
This article appeared in The Edge Financial Daily, November 21, 2011.
Upgrade to buy at RM3.07 with revised target price of RM3.59 (from RM3.04): Kossan’s 9MFY11 results were in line with our and consensus expectations, accounting for 70% and 68% of the full-year figure respectively. As expected, 9MFY11 earnings were 24.1% lower year-on-year (y-o-y) at RM67.5 million.
The good performance in 3QFY11 is unsurprising as the latex price has softened to RM6.77 per kg from its highest level in April 2011 of RM10.93. Higher earnings of RM23.6 million (+12.9% quarter-on-quarter [q-o-q]) were mainly anchored by strong results from both its divisions. Pre-tax profit surged 25.2% q-o-q for its gloves (due to lower latex price) and 16% for its technical rubber products (TRP) (strong demand from automotive sector). Earnings before interest and tax (Ebit) margin for 3Q fell within our estimate of 11% to 12% at 11.8%. We expect Ebit margin for FY11F to average around 11.5% to 12%.
Kossan has declared an interim tax-exempt dividend of three sen which is expected to be paid on Dec 20. The three sen accounts for about 40% of our full-year figure.
We are rolling our valuation to FY12F with a price-earnings ratio of 10 times, which is Kossan’s three year-historical average PER. Thus, we derive a higher target price of RM3.59 (from RM3.04). Therefore, we are upgrading our call to “buy” from “neutral” previously. We believe that average FY12 PER of 10 times is sensible given that Top Glove Corp Bhd has always traded at a premium among glove players with a multiple of 14 times and Hartalega Holdings Bhd at 11 times. — MIDF Research, Nov 18
This article appeared in The Edge Financial Daily, November 21, 2011.
