Kossan’s net profit expected to improve from 2HFY17 onwards — AmInvestment Bank
KUCHING: Kossan Rubber Industries Bhd’s ( Kossan) net profit is expected to improve from the second half of financial year 2017 (2HFY17) onwards, after an unexciting FY16.
According to AmInvestment Bank Bhd (AmInvestment Bank), FY16 was marked by plant maintenance works, absence of capacity expansions and a price war in 2HFY16.
AmInvestment Bank believed that Kossan’s net profit will grow by 15 per cent in FY18F on the back of an increase in the production capacity.
“Kossan is expected to add one production line in FY17F, which would raise annual production capacity from 22 billion to 25 billion gloves,” the research firm said.
“Thegroup’sproductioncapacity is expected to expand further from 25 billion to 29.5 billion gloves by end- FY18F due to the addition of two lines.”
AmInvestment Bank estimated Kossan’s earnings before interest, tax, depreciation and amortisation (EBITDA) margin to be relatively unchanged at 17 per cent to 18 per cent in FY18F as the group passes any increase in the cost of latex and nitrile to the group’s customers.
AmInvestment Bank noted that Kossan’s long-term profit growth is expected to be underpinned by its commitment to R&D (research and development).
“The group’s R&D centre in Meru, Klang will be focusing on ways to increase automation and efficiency.
“This will help reduce operating costs in the long term,” it said.
The research firm further noted that some of the areas R&D will focus on are optimising or finding the most efficient chemicals to use, developing ways to automate processes to reduce reliance on foreign labour and introducing new glove technology.
It pointed out that the R&D centre, expected to cost RM15 million to RM20 million, is set to open at end-FY17F with Kossan managing director driving the group’s initiatives.
On another note, AmInvestment Bank highlighted that one of Kossan’s innovation is the low dermal technology used to produce non-allergenic rubber gloves, thus suitable for all users.
“Currently, about 20 per cent of Kossan’s production lines are manufacturing gloves with low dermal technology.
“Eventually, all of Kossan’s lines would produce gloves using this technology,” the research firm said.
It added that Kossan’s low dermal technology is patented and certified by the US FDA (Food and Drugs Administration).
The research firm also highlighted that selling prices of examinationglovesproducedbased on the low dermal technology are slightly higher than others.
It believed that this would support Kossan’s operating profit margin in the long term.