The research house downgraded the stock to a “hold” from “add” with a lower target price of RM8.10, citing a six-month delay in its current forecasts.
As at March 2018, all eight lines in the company’s new F16 plant have been installed but have not begin full commercial production.
“This is mainly due to teething issues during the trial runs, leading to a longer-than-expected period required for line tests,” CIMB Research said in a note.
CIMB Research, which recently spoke to the glovemaker’s management, noted that Kossan was now taking a more conservative stance on the delivery of its other two new plants, F17 and F18, which would be completed by year-end.
The research house now expects gradual commercial production to begin by earlys econd quarter of 2019, a four-month delay from the earlier forecast.
“Given that Kossan has not added any new capacity since December 2015, it has not been able to benefit from the recent surge in demand for gloves.
“Hence, we believe the commencement of full commercial production of Plant 16 is essential to drive earnings growth in FY18,” it said.
The research house has lowered its financial year ending December 31, 2018 (FY18) to FY20 earnings per share estimates by 1.9% to 6% to take into account the delays in Kossan’s expansion plans.
It added that any further delays in the ramp-up of the company’s new plants would act as downside risks to its forecasts.
For the upcoming first quarter ended March 31, 2018 results, the research house expects Kossan to record a flattish quarter-on-quarter net profit due to a minimal increase in its production volumes during the quarter.
The research house said the recent weakness in the US dollar against the ringgit should be mitigated by a decline in natural latex prices.
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