PublicInvest Research retains Outperform for Kossan

CIMB Research said its case study on the dynamics of global glove supply and demand show that a supply glut may occur in 2016 to 2017 before demand eventually catches up in 2018

KUALA LUMPUR: PublicInvest Research is maintaining its Outperform call on glove maker Kossan as it continues to remain positive about its prospects, but with a lower target price of RM8.50 from the previous RM9.70 due to the earnings revisions.

It said on Wednesday Kossan’s 1QFY16 results were broadly in line with expectations, making up 24% and 22% of its and consensus estimates respectively. 

Kossan’s 1QFY16 revenue of RM412.3mil was recorded (-6.1% on-quarter, +11.7% on-year), while earnings came in at RM51.3mil (-7.1% on-quarter, +12.9% on-year).

This was on the back of higher sales volume (+1.6% on-quarter, +7.8% on-year) though on slightly lower margins. 

Earnings before interest and tax (EBIT) and profit before tax (PBT) margins fell to 16.5% and 15.9% respectively (4QFY15 EBIT: 18.5%, PBT: 17.9%), resulting from higher operating expenses following increased raw material prices, natural gas cost hike, stiffer competition and strengthening of the Ringgit.  

“We are lowering our earnings estimates by 5% to 11% for FY17F onwards to account for lower average selling prices (ASP) in view of intensifying competition and further adjustments in our capacity projections. 

“We maintain our Outperform call on Kossan as we continue to remain positive about its prospects, but with a lower TP of RM8.50 (previously RM9.70) owing to the earnings revisions,” said PublicInvest Research.