Kossan posted commendable 1HFY13 results which were in line with our estimates, mainly attributed to the company’s higher production efficiency. This was in turn driven by improved automation at its plants. In view of current market conditions, we are revising our assumptions. Maintain BUY on the stock, with a higher FV of MYR7.53, pegged to an unchanged 14x FY14 P/E.
- Commendable 1HFY13 results. Kossan recently announced solid 1HFY13 results with a core net profit of MYR66.6m (+46.2% y-o-y), which came in line at 50% of our full-year forecast. The strong growth was attributed to the company’s higher production efficiency, driven by increased automation at its plants.
- Tweaking estimates. Given the strengthening USD/MYR, we are revisiting our model and revising our FX assumption to MYR3.20 (from MYR3.10) for both FY13 and FY14. We are also factoring in higher logistics costs given the recent hike in petrol prices. We now estimate earnings of MYR144.5m and MYR172.6m for FY13 and FY14, up 8.4% and 2.1% from our previous forecasts respectively.
- 1-for-1 bonus issue. On 2 Sept, Kossan proposed a 1-for-1 bonus issue of up to 319.7m bonus shares, which would increase its share base to 639.5m. Our new FV now stands at MYR7.53 (from MYR7.38), which implies our ex-bonus FV would now be reduced to MYR3.78. We believe that the exercise will improve trading sentiment by boosting the stock’s liquidity.
- Maintain BUY. All in all, we continue to like Kossan’s 50:50 production mix of natural latex and nitrile gloves as well as its increasing expansion in the nitrile segment. We maintain our BUY recommendation on the stock as we bump up our FV to MYR7.53, premised on a 14x FY14 P/E. This is a premium to the 12-month average P/E of about 11x that is deserved, in our opinion, due to strong earnings growth and widening margins.
Source: RHB
Tony Tony
Still can buy at rm6.84???
2013-09-11 20:42