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By AmInvestment Bank Bhd

Buy (maintained)

Target price: RM8.64

AMBANK reiterates its “buy” call on Kossan, now with a higher future value of RM8.64 from RM7.51. This is based on an unchanged target price-to-earnings (PE) ratio of 22 times its projected earnings per share (EPS) for financial year 2018 (FY18).

Following the unimpressive FY16 that was marked with plant maintenance works, absence of capacity expansions and a price war in the second half of the year, Kossan’s net profit is expected to improve from the second half of FY17.

Kossan is expected to add one production line in FY17, which would raise annual production capacity from 22 billion to 25 billion gloves. Based on this increase, AmBank believes that Kossan’s net profit will grow by 15% in FY18.

In fact, the group’s production capacity is expected to further expand from 25 billion to 29.5 billion gloves by end of FY18, thanks to the addition of two more lines.

AmBank estimates Kossan’s earnings before interest, taxation, depreciation and amortisation margin to be relatively unchanged at 17%-18% in FY18, as the group passes any latex/nitrile cost rises to its customers.

Kossan’s long-term profit growth is expectedly anchored by its commitment to research and development (R&D).

The group’s R&D centre in Meru, Klang, will focus on ways to increase automation and efficiency – optimising efficient chemical use, developing ways to automate processes to reduce reliance on foreign labour and introducing new glove technology.

An example of new glove technology innovation is the production of non-allergenic rubber gloves, which are suitable for all users.

Currently, about 20% of Kossan’s production lines are manufacturing gloves with low-dermal technology, and the hope is that eventually it will be 100%. Such R&D commitment will help reduce operating costs in the long term, supporting AmBank’s suggestion to buy.



By AllianceDBS Research

Buy (maintained)

Target Price: 75 sen

PANTECH registered a net profit of RM14mil in the first quarter of financial year 2018 (Q1 FY18), an increase of 73% year-on-year (yoy) and 24% quarter-on-quarter (q-o-q).

This was caused by a demand rise at both Pantech’s trading division as well as the manufacturing division. Earnings were in line with AllianceDBS Research expectations at 28% of its full-year forecast, but above consensus at 34%, probably because historically, the first half is stronger than the second.

Net margins also improved to 9.2% in Q1 FY18 from being 6.5% in Q1 FY17 and 7.4% in Q4 FY17.

Pantech has declared a dividend per share of 1 sen for Q1 FY18, a step up from Q1 FY17’s 0.50 sen, implying 53% payout. For Q1 FY18, Pantech recorded pre-tax profit growth of RM12.8mil, resulting in +61% y-o-y and -6% q-o-q.

The y-o-y improvement is largely attributable to the increase in demand and delivery of downstream oil and gas projects, such as Refinery and Petrochemical Integrated Development.

The slight q-o-q drop is due to the intermission period between the structural phase to the development phase.

Pre-tax profit margins improved to 13.8% following 10% in 1Q17 and 12.8% in 4Q17. The improvement is due to an enhanced product mix, which consists of PVF fittings compared to steels, used for structural and earthworks in the previous quarters.

Pre-tax profit for manufacturing improved as well with 40% y-o-y and 34% q-o-q to RM5.5mil due to higher sales contribution from the local manufacturing plant. AllianceDBS Research expects pre-tax profit margins to remain at the current level until FY20.

Although Pantech’s new galvanising plant is still loss-making at end-Q1 FY18 as a result of start-up costs, AllianceDBS Research expects it to break-even in the second half of 2018 and see its margins expand.

Therefore, the research group’s target price is unchanged at 75 sen, as well as its recommendation to buy, where the stock offers a dividend yield of about 4.2%.


By CIMB Research

Add (no change)

Target Price: RM2.06

SASBADI’s revenue for nine months of financial year 2017 rose 3.6% year-on-year (y-o-y) to RM80.1mil, while net profit fell 1.6% y-o-y to RM12.3mil.

The increase in revenue came from the August 2016 consolidation of United Publishing House, a publisher of Chinese books and dictionaries.

Other divisions generally had lower revenue due to slow domestic consumer demand. The decline in net profit is mainly attributable to higher operating costs.

Earlier, CIMB Research expected iL-Ace’s multilevel marketing (MLM) sales of RM14mil in financial year 2017 (FY17) and RM140mil in FY18.

However, MLM sales have been averaging around RM500,000 per month for the past 12 months. It is predicted that pick-up in sales will take more time, as training for its members is taking longer than expected.

Due to the slower-than-expected MLM sales so far, the research firm now forecasts MLM sales of RM7mil in FY17 and RM70mil sales in FY18.

“We believe MLM revenue in FY18 could surprise on the upside as some MLM players with large distribution networks have recently joined Sasbadi,” added CIMB Research.

On July 25, Sasbadi announced its plan to buy the remaining 30% stake in Sanjung Unggul Sdn Bhd for RM9.4mil, after having acquired 70% of it for RM21mil in August 2015.

Sanjung Unggul publishes Chinese school textbooks, allowing Sasbadi to fully consolidate the latter’s operations: the company can add more titles from its other subsidiaries and publish them as textbooks.

The research firm slashes its financial year 2017-2019 forecast earnings per share (EPS) by 25.4%-38.1%, to reflect slower than-expected iL-Ace sales. Its new target price is still based on a 20% discount to 16 times FY18 price-to-earnings ratio (PE) to show its small market cap.

Despite disappointing results, CIMB Research remains positive on iL-Ace in the long term, thus keeping its “add” rating.

CIMB Research expects Sasbadi to complete the proposed 1:2 bonus issue in the third quarter of the calendar year 2017. The bonus issue should help to improve the trading liquidity and also make the stock more affordable for retail investors.


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