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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 17 Sep 2021, 10:27 AM

 

Kossan Rubber Industries Berhad - ASPs To Decline

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Kossan’s 1HFY21 net profit grew by 975.6% YoY to RM2.11bn, on the back of stronger ASPs and sales volume on a YoY basis. The results came in above both our and consensus estimates at 69% and 64% respectively. However, we still deem the results in line, as we reckon that ASPs have peaked in 2QFY21 and should decline gradually in 2HCY21, as vaccination program continues to pick up speed globally. We think the expectation of lower raw material prices in 2HCY21 will also contribute to the ASP decline. We make no changes to our earnings projection, and we maintain our Neutral call on Kossan, with an unchanged target price of RM3.65. Our TP implies a PE multiple of 21x, at 5- year pre-Covid historical mean, based on CY23F EPS of 17.1 sen per share. Kossan also declared an interim dividend of 12sen per share, bringing total cumulative dividend for FY21F to 24sen per share.

  • ASPs peaked. Kossan’s 2QFY21 group revenue grew marginally by 2.1% QoQ to RM2.24bn, supported by stronger revenue contribution across all three divisions. Revenue growth for its glove division was flat QoQ, reporting a topline of RM2.12bn, despite glove ASPs increasing by 5-7% QoQ. Lower sales volume of 2-4% QoQ has offset the effects of higher ASP. We believe the lower sales volume was a result lower utilsation rate, following the implementation of 60% workforce ruling set by the Ministry of International Trade and Industry (MITI). As for raw material costs, nitrile butadiene prices rose by 2-4% QoQ, while latex prices remained relatively unchanged on a QoQ basis. In tandem with the marginal growth in revenue, group net profit was also marginally higher, up 2.2% QoQ, to RM1.06bn. On a side note, Kossan had also fully reimbursed the remaining remediation fees of RM25m during the quarter.
  • Technical Rubber Product Division. Kossan’s technical rubber products (TRP) division delivered a 21.3% QoQ growth in revenue, reporting a revenue of RM50.4m, due to higher demand for its TRP products. PBT was also 6.5% higher QoQ, at RM13.7m. We believe this division will continue to benefit from an uptick in economic activity as well as infrastructure spending regionally in 2HFY21.
  • Expansion. Lines commissioning in Plant 20 (5 lines, +2.0bn pcs pa) is underway currently, with completion targeted to be in 3QFY21. The expansion on its Meru land will be carried out in two phases, with 1st Phase (6 lines, +2.0bn pcs pa) targeted to begin commissioning in 2HCY21F, while the 2nd phase (10 lines, +3bn pcs pa) will start in 1HCY22F. Should the demand for gloves decline post-pandemic, we do not rule out the possibility of Kossan pushing back some of its expansion plans, to rebalance any potential demand-supply disequilibrium in the market.

Source: PublicInvest Research - 28 Jul 2021

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Labels: KOSSAN

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Chart Stock Name Last Change Volume 
KOSSAN 2.60 -0.16 (5.80%) 14,856,600 

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