Glove maker Kossan Rubber Industries Bhd’s share price rose to nearly RM4 on Friday – the highest in a month — as investors remained upbeat about its prospects.
At 3.12pm, it was up 15 sen to RM3.96. Turnover was 895,700 shares done at prices ranging from RM3.82 to RM3.96.
The FBM KLCI fell 1.84 points to 1,886.85. Turnover was 1.26 billion shares valued at RM1.04bil. There were 435 gainers, 326 losers and 327 counters unchanged.
Public Invest Research had a 12-month target price of RM5.12, which was 34.4% above the current price of RM3.81.
The research house visited Kossan’s new plants where the factory in Meru, Klang was commissioned since end-April while the upcoming plants in Kapar would be commissioned in the second half of 2014.
Public Invest Research said all the plants would produce 3g nitrile gloves at line speed range from 40,000 pieces a hour to 43,000 pieces an hour.
“We were impressed with the new design of the lines, coupled with the advancement of the technology and concede that Kossan has remained a strong player, as it prioritised its focus on the efficiency and technological aspects ahead of its capacity expansion.
“Kossan’s strategy has led its performance to grow its margins (12% from 10% on-year) while increasing capacity, amidst a crucial time for players who are experiencing the margin compressions,” it said.
Public Invest Research said demand was largely driven by its sustainable client base buoyed by its wide range of glove types offering, with the ability to cater for its various clients’ needs.
To recap, Kossan produces clean room, food grade, high risk glove and other thick versions of natural glove gloves for specific applications.
“The group’s product mix currently consists of 56% nitrile (SR) and 44% natural rubber latex (NR), with the aim to target a 65% SR and 35% NR ratio production in 2014,” it said.
Public Invest Research pointed out it was reassured of Kossan’s performance due to the full capacity orders for 2HFY14, or a utilisation capacity of 85% of the total plant’s production.
It maintained its Outperform recommendation based on Kossan’s ability to grow its margins and with further upside expected from the improving contributions from the product mix, technological enhancements and ongoing efficiency initiatives.
“We are however adjusting our revenue and earnings estimates by -10% and -13% respectively to account for the 2014 new capacity’s full realisation only in FY15. Our DDM-derived TP of RM5.12 remains unchanged nonetheless in anticipation of Kossan to continue increasing its dividend payout,” it said.