Kossan Rubber Q2 profit up 13% on higher sales

Posted by Genius GS > 2012-08-24 11:46 | Report Abuse

PETALING JAYA: Kossan Rubber Industries Bhd reported a 12.81% increase in net profit to RM23.62mil on the back of a 10.57% increase in revenue to RM304.75mil for the second quarter to June 30, 2012 due to lower raw material cost, higher sales volumes and better efficiency. Earnings per share increased to 7.39 sen from 6.55 sen. For the first half period, net profit was up 3.83% to RM45.58mil on the back of a 11.68% increase in revenue to RM594.19mil. As of the period, the company had cash of RM34.83mil versus RM47.74mil in the same period of the previous year. In notes to Bursa, Kossan said that the technical rubber products division was expected to grow steadily, with attention on infrastructure products and additional demands from overseas. The management is confident profits from this division will be maintained in the second half of the year. In the gloves division, management is confident the demand for all types of gloves will remain strong. “The commissioned nine new single formers lines are capable of producing 1.25 billion pieces of nitrile glove, thereby increasing output from 38% to 44% in the second half of 2012. “The new surgical gloves production is expected to come on stream in November 2012. “With the strong demand and increased output, the management is confident profits are expected to grow in tandem in the second half of the year,” said Kossan. Meanwhile, Kossan said that the clean-room division would continue to expand its maskS and wipes products and market aggressively into the electronic sector. This division will also proceed strongly with the expansion of clean-room gloves.

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2 comment(s). Last comment by Genius GS 2012-08-24 11:48

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Posted by Genius GS > 2012-08-24 11:47 | Report Abuse

http://research.maybank-ib.com/pdf/document/Kossan_2Q12_20120824_MIB_1905.pdf

Genius GS

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Posted by Genius GS > 2012-08-24 11:48 | Report Abuse

Kossan Rubber Industries
Falling Latex Price Yet To Play Out
Good results. 2Q12 net profit of MYR24m (+8% QoQ, +13% YoY)
lifted 1H12 net profit to MYR46m (+4% YoY). Though 1H12 made up
45% of our full-year forecast and 42% of street’s estimates, this is
within expectations as we foresee a stronger 2H12 on lower input costs
and contribution from new capacity. We think the long-term soft latex
price story has yet to play out, given Kossan’s relatively flattish share
price performance and cheap forward PER of 8.8x. Maintain forecasts,
BUY rating and TP of MYR3.75 (10x 2013 PER).
Driven by higher sales volume, lower latex cost. Stronger net profit
of MYR24m (+8% QoQ, +13% YoY) was derived from: (i) higher sales
volume of 2.6b pcs (+5% QoQ, +27% YoY); (ii) slightly higher EBIT
margin of 11% (+0.2-ppt QoQ, +0.4-ppt YoY) on lower latex input cost
(-12% QoQ) and stronger USD:MYR (+3% QoQ); and (iii) clean-room
division remaining in a minor loss of MYR0.3m owing to development
cost. Sales volume product mix between latex:nitrile gloves is 53:47.
Expect stronger earnings in 2H on: (i) enhanced margins on lower
input costs. Both latex and NBR costs have dropped 15% QoQ and
23% QoQ respectively in 3Q12; and (ii) higher sales volume from new
capacities. The new 1.25b pcs nitrile capacity (+11% to existing total
capacity) is currently under trial run and full commercialization is
expected by Sep 2012. Additionally, Kossan also aims to commence
700m pcs surgical capacity by Nov 2012.
Softer latex price outlook. Despite the intervention scheme by the
Thai government since May 2012 (bought 80,000 tonnes rubber sheets
from farmers), latex price continued to slide to RM5.50/kg now (-36%
YoY). Going forward, the Thai government is looking to spend another
USD476m on buying rubber sheets from farmers, indicating 187,500
tonnes of rubber sheets (or c.2% of global production). We continue to
think that it is inefficient to fight market forces and believe latex price
will remain soft on weaker global demand and rising rubber output.

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