AmResearch has maintained its Buy rating on Kossan Rubber Industries Bhd at RM4.09 with a higher fair value of RM5.05 (from RM3.80), and said although Kossan’s share price had performed exceedingly well in the last year, the stock had further upside.
In a recent note, the research house said its upbeat view was premised on:- (1) Kossan’s superior earnings growth of 28% in CY14 versus peers’ average of 11%; (2) margin expansion on the back of its move up the value chain and favourable operating environment; (3) growth in its TRP division; and (4) greater investor interest.
AmResearch said it believed that Kossan’s earnings growth would continue to be capacity-driven, underpinned by its target to have an installed capacity of 32 billion pieces per annum by 2017.
The research house said Kossan was presently constructing 3 new NBR glove plants which would collectively increase its capacity by about 5 billion pieces (or 30%) in FY14F.
It said this potentially translated into additional revenue of about RM400 million for FY14F.
“We anticipate a similar revenue contribution and quantum of NBR gloves to come on-stream in FY15F.
“We envisage Kossan’s FY14F EBITDA margin to expand to 18% on the back of:- (1) low input prices; (2) strengthening of the US dollar (versus ringgit); (3) its NR:NBR product mix target of 20:80 by FY16F (45:55 now); and (4) greater production efficiency.
“All in all, we have raised Kossan’s FY13F-FY15F earnings forecast by 6%-16%. In tandem with that, we have also adjusted our gross DPS forecasts while maintaining a payout ratio of 40%. Yields are still decent at 2%-3%.Valuation-wise, Kossan remains attractive. At the current price, it is trading at an FY14F PE of 14.7x, on par with Top Glove’s but at a 28% discount to Hartalega’s 20.6x,” it said.
Source: Yahoo Newe
Published: 20 Jan 2014