AmResearch is maintaining its Buy rating on Kossan Rubber Industries with an unchanged fair value of RM5.05 a share.
It said on Thursday it continues to peg itsvaluation to a price-to-earnings (PE) of 17.5 times over its FY14F earnings.
“Kossan ended FY13 on a strong note with net profit of RM39mil in 4QFY13, which extended its FY13 earnings to RM141mil. The results were in line with expectations, accounting for 99% of our forecast and 103% of consensus estimate,” it said.
AmResearch said the group’s 38% on-year surge in net profit can be mainly attributed to margin expansion, as reflected in the 3.0 percentage points on-year increase in its EBITDA margin to 18%, which is close to its peak of 19% back in FY09/10.
This expansion was driven by better production efficiency, an improved product mix (nitrile gloves: 55% in FY13 vs. 43% in FY12) as well as higher units of glove sold.
The higher on-year sales volume had more than mitigated the decline in average selling price (ASP) following softer raw material prices (latex: -15% on-year; nitrile: -22% on-year).
Growth at its Technical Rubber Product division continued to gain momentum. For the full year, its revenue grew by 14% on-year while profit before tax jumped by 20% on-year as a result of higher sales of infrastructure and automotive products.
“Management believes that this positive trend will continue in FY14F as the global economy continues to improve.
“Future earnings enhancement for the division could come from its Indonesia plant, which is presently under construction. Looking ahead, we believe Kossan’s earnings growth will continue to be capacity-driven,” said the research house.
AmResearch said Kossan was building three nitrile glove plants which will collectively increase its capacity by about five billion pieces (or 30%) in FY14F to 21 billion pieces per annum.
Source: The Star
Published: 27 Feb 2014