Quick take: Kossan profit sends shares up 3.75%

KUALA LUMPUR: Kossan Rubber Industries Bhd is one of the top performer on Bursa Malaysia with shares up 3.5% in early trade after it posted a higher profit.

The glovemaker gained 15 sen, ot 3.75% to RM4.15 with 801,000 shares done.

Kossan posted a 29.6% increase in net profit for the fourth quarter ended Dec 31, 2018 (4QFY18) to RM59.51mil from RM45.91mil in the same period a year earlier.

It attributable the better profits to improvements in all of its three divisions — gloves, technical rubber products (TRPs) and clean room.

Most significantly, the glove division's revenue rose 25.4%, with profit before tax (PBT) increasing by 16.72%, compared with the same quarter a year ago.

"The improved performance was achieved on the back of continued strong demand for the group’s glove products, with higher average selling prices and higher volume sold compared with the previous year quarter.

“This was achieved despite the increase in natural gas and nitrile prices. In the period under review, natural rubber prices declined," Kossan said.

For the full financial year ended Dec 31, 2018, Kossan posted a net profit of RM200.7mil on revenue of RM2.14bil.

MIDF said Kossan’s 4QFY18 earnings rose by +29.6% year-on-year to RM59.5mil.

“This brings its FY18 earnings to RM200.8mil which is within ours and consensus’ full-year earnings expectation at 97.5% and 97.8% of full year FY18 earnings forecasts respectively,” it said.

MIDF has maintained its FY19 earnings forecast at this juncture as it expect that the scheduled expansion for FY19 will sustain earnings growth momentum.

In addition, the research house has also introduced its FY20 earnings forecast. Key risks to its earnings would be slowdown in demand for glove product, sudden jump in raw materials prices i.e. nitrile and latex and delay in expansion plan.

“We are revising our target price to RM4.62 per share (previously RM4.18) as we rolled forward our valuation base year to FY20. This is derived via pegging our FY20F EPS of 21.0sen to PER of 22x (30% discount to Hartalega ),” MIDF said.

“We are upgrading our recommendation on Kossan to ‘buy’ (from neutral previously).

“We believe that earnings growth for Kossan will be supported by high demands for glove and its ability to keep with these demands as seen in its expansion plan,” MIDF said.

Stock on the Move , Kossan , nitrile