CGS-CIMB Research raises Kossan TP to RM16.40

  • Analyst Reports
  • Monday, 27 Jul 2020

KUALA LUMPUR: CGS-CIMB Equities Research raised its target price for Kossan Rubber Industries from RM15 to RM16.40 due to higher average selling prices (ASP), new glove factory and longer order book visibility.

It said on Monday it raised its FY20-22F EPS by 5% to 11.1% to account for higher-than-expected ASPs from 3Q20 onwards and a new glove plant with capacity to produce 1.4 billion pieces per annum which will be fully commissioned by end-1H21.

“Our current ASP assumptions for FY20/21/22F are +18%/+10.5%/-10% vs. +16%/+9.6%/-10% previously. Reiterate Add with a higher TP of RM16.40, ” it said.

The research house said Kossan held a conference call with sell-side analysts on Friday where it said Kossan shared that it expects ASPs to rise by 20% in July 2020 (vs. 2Q20) and another 20% month-on-month in August 2020.

“It also did not discount prospects of further ASPs hikes in the coming months due to: i) strong global glove demand and ii) ASPs that Kossan believes are still lower than the industry average.

“Kossan also shared that it has allocated up to 10% of its total capacity for spot orders (steep premium in ASPs compared to recurring orders), but may increase this to 15% depending on market dynamics, ” it said.

Kossan also stated plans to add a new glove plant, Plant 20, with a total production capacity of 1.4bn pieces p.a. (5 lines). This new plant will be located in the vicinity of its existing plants in Meru, Klang (in between Plant 18 and 19).

Kossan expects all five lines to be fully commissioned by end-1H21. Along with its existing expansion plans (ongoing expansion plan in Bidor, Perak and addition of a new 5bn pieces p.a. glove plant in Meru, Klang), Kossan’s total production capacity is expected to rise by 46.2% to 42.4bn pieces by end-2022F.

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