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Author: PublicInvest   |   Latest post: Mon, 11 Nov 2019, 9:47 AM

 

Kossan Rubber Industries Berhad - Within Expectations

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Kossan reported a better set of results for 2QFY19, with a 28.6% YoY increase in net profit to RM55.9m. The results were broadly in line with our and street estimates, at 52% and 48% respectively. On a YoY basis, both the technical rubber (TRP) segment and clean-room segment reported weaker results, leaving only the gloves segment posting improvement in earnings. The TRP segment and cleanroom segment’s PBT declined by 8.1% and 44% YoY, while the glove’s segments PBT grew by 33%. We maintain our Trading Buy call, with an unchanged TP of RM4.30.

  • Gloves. Kossan gloves division’s revenue jumped by 10.5% YoY to RM478m, supported by stronger glove sales (+8.7% YoY) due to additional production capacity. However, the ASP fell by 5-7% YoY and we attribute this to the overall lower raw material prices. The NBR prices fell by 10-12% YoY but NR prices rose by 7-9% YoY. Note that Kossan produced more NBR gloves; therefore we believe that the decline in NBR prices was more than enough to offset the increase in NR prices, bringing the average raw material prices lower. PBT margins for the glove segment improved in 2QFY19 to 13%, as opposed to 10.7% in 2QFY18. We believe the margin improvement was due to Kossan’s unwavering effort to reduce cost and improve manufacturing efficiency.
  • Expansion plan. Kossan’s current capacity stands at 26.5bn pcs p.a. 4 out of 8 lines for Plant 18 (+2.5bn pcs p.a.) has been scheduled to complete commissioning by end-August, while the remaining 4 lines are targeted to be commissioned, 2 lines each in September and October. Plant 18 is on track to be fully commissioned by 3QFY19. As for Plant 19 (+3.0bn pcs p.a.), construction works are underway and full commissioning expected to be in 4QFY19. Upon full commissioning of both Plant 18 and Plant 19, Kossan’s total installed capacity should grow by c.20% to 32bn pcs p.a. The extra production capacity from these two plants should underpin the growth of Kossan in FY20-FY21F.
  • Integrated manufacturing complex in Bidor. Land clearing work on the piece of Bidor land will commence in September 2019, to make way for its integrated manufacturing facility. It will take approximately 9 months to complete the land clearing work before it is able to begin with the constructions of plants. Hence we expect the construction works in Bidor to commence mid-FY20. We understand that basic infrastructure like roads and flyover bridges are already being constructed. The entire expansion in Bidor will take some 8 years to complete.

Source: PublicInvest Research - 23 Aug 2019

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