KOSSAN RUBBER INDUSTRIES BHD
HAVING ramped up activities at Plant 16, coupled with strong demand, Kossan’s net profit for the third quarter of financial year 2018 increased 25% quarter-on-quarter (q-o-q) to RM54mil.
This brought the bottom line for the ninemonth period to RM142mil, which was within expectations, making up 71% of UOB KayHian’s full-year forecasts but coming in below street estimates of only 68% of annual projection.
Total revenue nudged up 16% q-o-q in the third quarter.
The glove division saw sales grow 17% q-o-q on robust demand, with volume up 8% q-o-q, forex tailwinds up 7% q-o-q as the US dollar appreciated against the ringgit, and positive average selling price revision up 2% q-o-q due to cost pass-through.
Kossan’s plant capacity utilisation rate appears to have remained steady at above the 80% mark and forward orders were still robust.
“This is bucking the trend, unlike two of its peers, and we suspect Kossan may be taking market share away from competitors.
“Regardless, it will be a more competitive business environment from now on, considering more nitrile glove supply capacity is coming on stream in the near term, and the vinyl glove undersupply in China is recovering as capacity restarts after 2017 environmental clampdown, prompting price-sensitive food and beverage customers to switch back to more economical glove offerings,” said UOB KayHian.
Kossan is now able to produce up to 26.5 billion gloves annually as it has fully installed eight manufacturing lines at its Plant 16 Jalan Meru site.
Also, the five lines at Plant 17 have been fully commissioned during the quarter as per guided.
The targeted commissioning timeline for Plant 18 (second-quarter 2019) and Plant 19 (fourth-quarter 2019) are intact, which will see the company’s annual production capacity jump to 32 billion pieces of gloves.
Over the medium term, Kossan aims to boost its manufacturing ability by another 18 billion gloves per year, which translates to a five-year compound annual growth rate of 10% in 2019 to 2023.
Kossan intends to have a centralised and integrated facility based at one location with an additional 45 billion pieces of gloves per annum when completed over eight years instead of two separate places – Bestari Jaya and Kuala Langat.
UOB KayHian maintains its “sell” but with a revised target price of RM3.64 as it pegs the stock to a higher 2019 price-earning multiple of 20 times due to a realignment exercise, in tandem with the recent valuation bump-up for Top Glove.