KLK
KUALA LUMPUR: RHB research believes investors should pick up shares in Kossan Rubber Industries
on the back of its share price decline of 7.8% year to date.
The counter has underperformed the benchmark FBM KLCI, which has risen 0.2% so far in 2019.
"Upgrade to BUY from Neutral with a higher DCF-derived TP of MYR4.45, 11% upside plus 2% FY19F yield.
"Our TP implies FY19F P/E of 22.3x or 0.2SD above the company’s average forward P/E valuation in the past three years," RHB said in a research note.
In its earnings announcement yesterday, the rubber glove manufacturer said 4QFY18 net profit jumped 30% year-on-year (y-o-y) to RM59.5mil due to higher sales volume and average selling price (ASP).
Core net profit in FY18 came to RM201mil, or 10% higher y-o-y, which was in line with RHB's expectations.
The group said revenue improved 23% y-o-y to RM589mil in 4Q, driven by a 17% increase in volume and 8% better ASP, which more than offset the impact from the higher prices of natural gas and nitrile by 24% and 12% respectively.
Natural rubber prices delclined 19% in the quarter.
In 4Q, Kosssan's EBITDA margin of 16.9% was higher versus that of the previous corresponding quarter of RM16.8%.
For outlook, the group said its demand for its glove products is trong with capacity for its latest Plant 17 fully taken up.
"We are positive on this and expect higher earnings contribution from Plant 17 in 1QFY19," said RHB.
The research house added that the Plant 18 construction works are currently on track with the group expecting full commissioning by end 2Q-CY19. The completion of Plant 18 will increase Kossan's total capacity by 9% to 29 billion ppa.
It added that Kossan's net gearing has increased to 28% as at end-FY18 but remains manageable below the 50% threshold.
Win a prize this Mother's Day by subscribing to our annual plan now! T&C applies.
